Fed chair signals rate hikes may be needed as inflation remains high

Federal Reserve Chair Kevin Warsh has said inflation remains too high and suggested the central bank may need to raise interest rates in the coming months to bring price pressures under control.

Speaking at the Fed’s annual conference in Jackson Hole, Wyoming, Warsh acknowledged that recent US data showed some cooling in inflation but stressed that the figures did not point to a meaningful improvement in underlying trends, Caliber.Az reports, citing the AP.

“We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed,” Warsh added. “Otherwise, we have work to do.”

The remarks came during Warsh’s first major public speech since replacing Jerome Powell as Fed chair on May 22, amid growing questions on Wall Street about his approach to inflation and interest rates.

Warsh has repeatedly avoided offering what economists call “forward guidance” on whether the Fed will raise, cut or maintain rates at upcoming meetings, arguing that doing so could limit the central bank’s flexibility.

On Friday, he again resisted outlining a specific policy path. However, he indicated that current interest rates may not be restrictive enough to slow economic activity, pointing to strong consumer spending and robust business investment in artificial intelligence equipment and infrastructure.

The Fed is scheduled to meet on September 15-16. Warsh’s comments do not necessarily mean rates will be raised at that meeting, but they suggest that the current level of interest rates may be insufficient to return inflation to the Fed’s 2% target.

Warsh made clear that inflation trends were “more concerning” than the labour market, where unemployment remains low. He also argued that inflation was unlikely to return to the Fed’s target without further action.

He noted that 54% of goods and services tracked by the government had recorded price increases of 3% or more over the past year. Although that figure has fallen from its pandemic-era peak, it remains “well above” the 32% recorded during the two decades before the pandemic.

Inflation eased in June and July after rising sharply in May amid higher gas prices, but it remains above the Fed’s target. The central bank’s preferred inflation gauge stood at 3.7% in July.

By Bakhtiyar Abbasov