Fed Chair Warsh Faces Inflation Test as CPI Report Looms Large

Federal Reserve Chair Kevin Warsh faces a critical test on inflation as the Consumer Price Index (CPI) report is released on Wednesday. Economists are debating what it would take for the Fed to raise interest rates, rather than cutting them.

The CPI report will show whether favorable inflation trends have persisted since former Fed economist Claudia Sahm's last analysis in July. In her post on X, Sahm questioned whether the trend would continue, saying 'CPI Eve' was a good time to revisit what it would take for a hike.

Sahm had previously put a 60% chance on the Fed holding rates and a 40% chance on a hike in her July post. The Fed left its benchmark rate unchanged at 3.50%-3.75% at its July meeting, extending its pause for a fifth straight meeting.

Economist Mohamed El-Erian flagged concerns over energy price increases since February spilling into core inflation and the strength of services inflation, which could shape the Fed's policy thinking.