Warsh Faces Inflation Test as US Fed Waits for August Data

The US Federal Reserve is bracing for crucial inflation data to be released in August, which will determine whether interest rates are hiked in September or kept unchanged. A low inflation figure in the July Consumer Price Index (CPI) report on August 12 would ease pressure on Fed Chairman Jerome Warsh and the policymaking committee.

However, a high inflation figure could force Warsh to take action to combat rising prices. The CPI is a key component of the Fed's preferred measure of inflation, and economists forecast core consumer prices rose 0.2% in July, excluding food and energy. A monthly increase at or below this level would be consistent with inflation returning to the Fed's 2% target.

Warsh has made bringing down inflation a central theme, but his comments last month raised doubts about whether he is prepared to act if necessary. Some officials have signaled they may support raising interest rates at some point if inflation does not improve, while others have questioned Warsh's motives and suggested he may be downplaying the need for rate hikes.

The market reaction to Warsh's comments was mixed, with long-term interest rates up and short-term interest rates down. Some analysts believe the Fed has valid reasons to keep interest rates unchanged, citing rising labor costs and diminishing contributions from tariffs.