Warsh Signals Possible Rate Hikes to Combat Persistent Inflation

Federal Reserve Chair Kevin Warsh signaled that inflation is still too high and may require rate hikes in the coming months, echoing his tough talk on prices. Speaking at the Fed's annual conference at Jackson Hole, Wyoming, Warsh acknowledged that recent U.S. data show inflation has cooled slightly, but 'they do not tell me that underlying trends have meaningfully improved.'

Warsh emphasized that inflation remains stubbornly above the central bank's 2% target and noted that in the past year, 54% of goods and services tracked by the government have seen price increases of 3% or higher. This is down from the pandemic peak but 'well above' the 32% that saw such increases in the two decades before the pandemic.

The Fed chair's comments appeared to reassure Wall Street that fighting inflation remains a priority for the central bank, and his remarks did not imply an imminent rate increase. However, expectations are building in the bond market for the Fed to raise interest rates, with the yield on the two-year Treasury moving from 4.22% to 4.30%, indicating investors expect short-term yields to move higher.