Inflation Pressure Mounts on Warsh Ahead of September CPI Report

A chairman who says little, facing data that won't let up

Kevin Warsh has run the Federal Reserve on the idea that the central bank should talk less and commit to less. A run of stubborn inflation data is testing how long he can keep that up. The August consumer price index, released September 11, came in hotter than expected. Core prices rose 0.3% for the month, and headline prices rose 0.4%, putting annual inflation at 3.4%21. Five days later the Fed raised rates for the first time since July 2023, a quarter-point increase to a range of 3.75% to 4%22.

The hike settled whether Warsh would act on his own warnings. It did not settle what comes next. With the September CPI due Wednesday, October 14, and the Fed meeting again on October 27–28, the question has moved from whether the Fed tightens to how fast and how far1410. Warsh has so far refused to say.

How the August print forced the issue

Before the August report, the Fed was split. Governor Christopher Waller and New York Fed President John Williams both leaned toward waiting for more data. Waller said on September 3 that he saw signs of disinflation and would likely support holding rates if those signs continued21. Warsh had taken a harder line at Jackson Hole on August 28. He said the Fed's main focus should be prices, and that the summer's better-than-expected PCE and CPI readings did not show underlying trends had improved much21.

CNBC's analysis framed the August CPI as a test of Warsh's authority. If he held off after months of inflation warnings, investors might start asking whether someone else, such as President Trump, Treasury Secretary Scott Bessent or Waller, was really steering policy21. Waller's sharp personal criticism of Warsh, and his reported dismissal of Warsh's internal task forces, added to that tension21.

Warsh got a unanimous vote, and coverage across outlets agreed that he passed the test. J.P. Morgan Wealth Management called the 12-0 decision the committee's most unified commitment to fighting inflation since Warsh became chair23. The New York Times reported that 10-year inflation expectations fell during his press conference, even as Treasury yields rose22. Schwab's Collin Martin said Warsh had given bond markets more clarity about underlying inflation24. That stood in contrast to his July press conference, which left investors confused and was followed by a rise in long-dated yields2427.

The guidance gap

The pressure on Warsh now is less about willingness to act and more about how little he explains. He would not say whether the September hike was the first of several or a one-off. He described it only as removing "a dose of accommodation"2226. The Times noted that this framing is unusual. Most Fed officials have described policy as modestly restrictive, which suggests Warsh may see the stance differently from his colleagues22.

The committee as a whole has been more forthcoming than its chair. The September dot plot showed 16 of 18 participants expecting at least one more quarter-point increase this year, and four saw room for two23. The median projection for the end of 2026 rose to 4.1% from 3.8% in June23. Officials also pushed back to 2029 the year they expect inflation to return to 2%29. Warsh again declined to submit his own projection2329. The minutes, released October 7, showed many officials calling higher rates prudent as insurance against inflation staying above target. Several said they did not consider the previous policy setting meaningfully restrictive261.

The result is that markets have to do much of the forecasting themselves. Chase's investment commentary warned that with fewer signals from the chair, rate expectations can swing sharply on each inflation or jobs report23. Bloomberg reported that Warsh has sharply cut back the Fed's forward guidance29. That is why the September CPI carries so much weight: it is the last inflation report before the October decision and before the November midterms20.

What the September CPI is expected to show

Forecasters mostly agree on the direction but differ on the details. Economists surveyed by Dow Jones expect headline CPI to rise 0.6% for the month and 3.6% from a year earlier11. Other consensus trackers put the annual rate at 3.7%1315. FactSet's survey has a smaller 0.5% monthly gain and a 3.6% annual rate17. The Cleveland Fed's nowcast estimates a 0.53% monthly rise and 3.60% over the year14.

The forecasts also split on core inflation. The Dow Jones survey sees core CPI rising 0.2% for the month but ticking up to 2.5% year over year11. FactSet and the Cleveland Fed model see it holding near 2.4%1714. Wells Fargo expects the annual core rate to dip slightly, to 2.41%12.

Energy explains most of the gap between headline and core. In August, energy prices were up 16.3% from a year earlier15. West Texas Intermediate crude averaged about 16% more in September than in August, and AAA data show regular gasoline climbing from $4.06 to $4.33 a gallon9. Brent crude was trading around $105 a barrel on October 13, and RSM's Joe Brusuelas warned that forecasting models tend to underestimate inflation surges like this one11.

The forecasts suggest the headline figure will rise because of the Iran war's effect on oil, while underlying price pressures stay moderate. Morningstar expects core inflation to remain contained enough to give officials room to wait17. Futures markets put the chance of an October hike at only about 20%2512. The bigger risk is in the details. Airline fares were up 23.4% over the year in August, diesel and delivery costs reach services prices with a delay, and University of Michigan respondents expect 4.6% inflation over the next year15.

Spending and growth make the case for higher rates

If the inflation picture is mixed, the growth picture is not. The Bureau of Economic Analysis revised second-quarter GDP growth up to an annualized 2.2% from 1.5%, and first-quarter growth up to 2.5%2. Final sales to private domestic purchasers, a measure of underlying private demand, grew at a 4.6% annualized pace in the second quarter48. The Atlanta Fed's GDPNow model puts third-quarter growth at roughly 3.6% to 3.7%98.

Consumer spending in August was strong. Nominal spending rose 0.9% and real spending rose 0.6%6, the fastest monthly gain since March 20257. Both goods and services gained, so the increase was not just a matter of paying more for fuel10. Retail sales were up 6% from a year earlier in August9. Fed staff told policymakers that consumer spending had firmed, that the AI buildout was driving business investment, and that growth would likely pick up in the second half1. Some participants also pointed to stock market gains supporting spending by higher-income households1.

This is the core of the hawkish argument. Oxford Economics' Bernard Yaros said a consumer showing no sign of slowing makes it more likely inflation stays sticky, which would push the Fed to act again this year10. Warsh himself has linked rising bond yields to stronger growth, heavy AI-related corporate borrowing and geopolitics, rather than to doubts about the Fed's credibility22.

Where the readings diverge

The biggest disagreement in the coverage is over what kind of inflation the Fed is fighting. The Fed's preferred PCE gauge was revised under new methodology. After the revision, headline PCE inflation for August was 3.4% and core was 3.0%6. Those figures are well below the 3.8% and 3.4% staff estimates the Fed had in hand at the September meeting1. After the revisions, core PCE has risen at an annualized rate of just over 2% over the past three months, according to the New York Times5. Peter Navarro, a Trump ally, argues that strong growth combined with softer core inflation undercuts the case for more hikes4. Equiti's Ahmed Azzam goes further, saying the Fed risks a policy mistake because higher rates cannot increase the oil supply8.

The consumer's strength also looks weaker on closer inspection. Real disposable income was flat in August and the saving rate fell to 4.1%67. Deloitte notes that spending has grown faster than after-tax income since mid-20243. The labor market is cooling as well: Equiti reports the economy added just 29,000 jobs in September8. The Conference Board's consumer confidence index fell to 81.9, its lowest level since 201420.

Other analysts push back on the case for patience. FXStreet's Joseph Trevisani argues that a Fed still mindful of how late it moved in 2022 will keep tightening into next year unless the outlook changes sharply9. Fed officials, too, describe the energy shock as something to contain, not something to look past. Williams said that while monetary policy cannot reopen pipelines, it can reduce the risk that supply shocks turn into broader, more lasting inflation10. Governor Michael Barr said he sees no clear trend toward a timely return to 2%10.

The likely outcome

The best reading of the evidence is that Warsh's Fed is set on further tightening, but not in a hurry. With strong growth, resilient spending and headline inflation near 3.7%, the hawks have their argument. The revised PCE data and moderate core forecasts give the doves a reason to wait. A September CPI in line with forecasts, with high headline inflation and calm core, probably means a pause in October and a hike in December, which is what investors were pricing after the September meeting22.

The real risk is a surprise in core inflation. If energy costs start showing up in services prices, an October hike becomes a live possibility. Under Warsh's minimal-guidance approach, markets would then have to reprice within about two weeks. Warsh is due to speak at the IMF annual meetings this week30. That gives him a chance to explain how he will respond to the data before the decision is made.