Warsh Opens Door for Fall Rate Hike Amid High Inflation Worries

Federal Reserve Chairman Kevin Warsh hinted at a possible interest rate hike this fall in his Jackson Hole speech, saying that if inflation doesn't decrease soon, the central bank will have 'work to do'. The Fed's dual mandate is to maintain price stability and maximum employment. Warsh acknowledged the impact of higher mortgage rates on the housing market, which has struggled with multidecade lows in home sales for three consecutive years.

In his speech, Warsh emphasized that members of the rate-setting Federal Open Market Committee agree that labor markets are stable and output is solid, but inflation remains too high. The Fed targets 2% inflation as measured by the PCE index, which came in at 3.7% in July.

Financial markets reacted to Warsh's comments by adjusting the odds of a September rate hike upward, with bond markets putting the probability at 57%, up from 35% the day before. Realtor.com senior economist Jake Krimmel noted that the Fed doesn't set mortgage rates directly but controls short-term interest rates for overnight lending between commercial banks.