Fed's Barr Warns of Further Policy Adjustments to Tame Inflation

Federal Reserve Governor Michael Barr stated that further policy adjustments are likely to be needed to ensure inflation comes down to target in a timely fashion. This is after the Federal Open Market Committee (FOMC) raised interest rates for the first time in three years last week, moving the target range on the federal funds rate to 3.75% to 4%. The FOMC unanimously voted for this change, and among committee members who project further tightening this year, 16 believe the benchmark rate will be moved higher before the end of the year.

Barr supported the move toward more restrictive monetary policy because inflation was not moving toward a 2% annualized rate in a timely fashion. He emphasized that price stability is crucial for sustainable and durable growth, which supports maximum employment. Barr also highlighted two government programs tasked with addressing housing unaffordability: the Community Investment Act (CRA) and the Low-Income Housing Tax Credit (LIHTC). The CRA has supported more than $430 billion of loans and homeownership-related investments in 2024.

Barr's views on the FOMC's policy adjustments come as the committee has two more meetings this year, with the next coming in late October. While Barr did not indicate whether he would support a hike at the FOMC's meeting next month or in December, his statement suggests that further interest rate increases may be on the horizon.