Fed Signals Rate Hikes as US Inflation Remains Elevated

The latest inflation numbers for the US are in, and they're not good. The personal consumption expenditures price index (PCE) rose 3.7% in July compared to last year, matching June's pace. This is well above the Federal Reserve's target of 2%. The PCE index is a key gauge watched by the Fed, and its high reading suggests that inflation remains a major concern.

Fed Chair Kevin Warsh acknowledged this reality in his speech at the Jackson Hole Economic Policy Symposium on Friday. He stated that 'we must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed.' If not, 'we have work to do,' implying that rate hikes may be necessary.

This signals a shift in Warsh's previous stance, indicating a more hawkish tone from the Fed. The next meeting is scheduled for September 15-16, but it remains unclear whether rates will be raised then. However, with inflation still elevated and consumer confidence faltering, the likelihood of rate hikes seems increasingly likely.