Barr Warns of Decisive Rate Hike If US Inflation Fails to Moderate

Federal Reserve Governor Michael Barr has warned that the US central bank may need to raise interest rates decisively if inflation does not moderate sufficiently. Speaking at the Second-Chance Lending Forum in Washington, Barr said the economy remains solid with a stable labor market and relatively low unemployment.

The labor market is stable, with relatively low unemployment, and growth has been supported partly by the boom in AI-related business investment and the expansion of AI capabilities, according to Barr. However, he noted that inflation remains too high, having stayed above the central bank's target for a prolonged period.

Barr attributed some of the renewed price pressures to tariffs, the conflict in the Middle East, and the rapid expansion of AI-related investment. He also highlighted elevated inflation in core non-housing services, warning that inflation remaining above target for a prolonged period could allow broader price pressures to take hold.