Warsh Signals Potential Rate Hikes to Combat Stubborn Inflation

Federal Reserve Chair Kevin Warsh signaled that interest rates may be necessary to combat stubbornly elevated inflation, marking a clearer stance than he has previously taken. Speaking at the annual Jackson Hole Economic Policy Symposium in Wyoming, Warsh acknowledged that recent US reports show inflation has cooled slightly, but 'they do not tell me that underlying trends have meaningfully improved.'

'We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed,' Warsh said. 'Otherwise, we have work to do.' He pointed out that inflation remains above the central bank's 2% target.

Warsh's remarks reassured Wall Street that fighting inflation remains a priority for the Fed. The yield on the two-year Treasury moved from 4.22% to 4.30%, indicating expectations of higher short-term yields. However, longer-term yields on 10-year and 30-year Treasuries were mostly flat.

Some economists argue that Warsh could provide more guidance without committing to specific policy actions. Yet he reiterated his skepticism about providing forward guidance or outlining interest-rate policy.