Warsh Signals Possible Rate Hikes to Combat Elevated Inflation

Federal Reserve Chair Kevin Warsh signaled that inflation may be too high and suggested interest rates could be raised to bring it down. Speaking at the Fed's annual conference in Jackson Hole, Wyoming, Warsh acknowledged that recent US data show inflation has cooled slightly but emphasized that underlying trends have not improved.

Warsh stated that 'we must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed,' adding 'otherwise, we have work to do.' He pointed out that 54% of goods and services tracked by the government saw price increases of 3% or higher in the past year, which is 'well above' the 32% seen in the two decades before the pandemic.

The Fed's preferred measure shows inflation at 3.7% in July, above the central bank's target. Warsh reiterated that short-term interest rates are the 'predominant tool' for lowering inflation and emphasized that interest rates currently aren't restricting economic activity.