Warsh Inflation Warning Sets Stage for September Rate Hike Showdown
US Federal Reserve Chair Kevin Warsh's recent warning about inflation has set up the central bank's September policy meeting as a pivotal moment in its mission to tame prices. In a speech, Warsh stated that price pressures have yet to meaningfully slow, leaving little option for him but to raise interest rates this year if inflation remains above the 2% target.
The market reaction was immediate, with traders increasing the implied probability of a rate hike in September to above 50%. Economists and investors interpreted Warsh's remarks as a threat to raise rates when policymakers next meet on September 15-16. However, some Fed officials continue to say they are willing to wait and assess new data before making any decision.
The potential for a rate hike ahead of the midterm elections in November could stoke criticism from US President Donald Trump, who appointed Warsh and continues to call for cheaper borrowing costs. Analysts at Barclays and Societe Generale said Warsh's remarks increased the likelihood of a quarter-point rate hike at the upcoming September gathering, followed by a second increase in December.