Fed Signals Rate Hikes May Be Needed as US Inflation Remains Elevated

The US economy is struggling to control inflation, which remains high despite some signs of cooling. The personal consumption expenditures price index (PCE) rose 3.7% in July compared to a year earlier, matching June's figure and still above the Federal Reserve's target of 2%. This measure is running hotter than the more widely followed consumer price index (CPI), partly because it puts less weight on rental costs.

Fed Chair Kevin Warsh recently spoke at the annual Jackson Hole Economic Policy Symposium, where he acknowledged that inflation has cooled somewhat but emphasized that underlying trends have not improved significantly. He suggested that interest rates may need to be raised in the coming months to bring down inflation, which is now 1.8 percentage points above target.

This could impact households and businesses, making it more expensive for consumers to borrow money or refinance their mortgages. The average long-term US home loan rate has ticked up to 6.66% from 6.65%, while the benchmark 30-year fixed mortgage rate is now just shy of its recent high for the year.