Warsh Faces Pressure to Combat Inflation with Rate Hikes

Federal Reserve Chairman Kevin Warsh is under increasing pressure to hike interest rates as inflation remains above the central bank's 2% target. Inflation has topped 2% for more than five years, and core inflation, which excludes energy and food prices, has risen since last December and remained around 3% or higher since 2023.

Warsh emphasized that the Fed will get inflation back to 2%, but his tough talk is being met with skepticism by some economists. They argue that without action from the Fed, inflation won't be defeated. 'There has never been a time when inflation gradually moderated without impetus from the Fed,' said Joseph Lavorgna, a former top economist at the Treasury Department.

Some economists, including Lorie Logan of the Federal Reserve Bank of Dallas and Christopher Waller of the Fed's governing board, are growing impatient with inflation's stubbornness. They argue that modestly higher interest rates would better balance the outlook. However, others, such as John Williams, president of the New York Fed, believe there are encouraging reasons to expect that inflation has peaked and should edge down in the coming quarters.

Warsh has said the Fed has 'no tolerance' for higher inflation and will deliver price stability. His tough talk has already lifted borrowing costs, with the yield on the 10-year Treasury note briefly topping 4.7% last Thursday, the highest in about 18 months.