Warsh Signals Rate Hikes May Be Needed to Combat Elevated Inflation

Federal Reserve Chair Kevin Warsh signaled on Friday that interest rate hikes may be needed to combat stubbornly elevated US inflation. In his first high-profile speech at the Fed's annual conference in Jackson Hole, Wyoming, Warsh acknowledged that recent reports show a slight cooling of inflation, 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.'

The comments appeared to reassure Wall Street that fighting inflation remains the priority for the central bank. However, expectations are building in the bond market for a potential rate hike, with the yield on the two-year Treasury moving from 4.22% to 4.30%, indicating that investors expect short-term yields to move higher.

The Fed next meets September 15-16, and while Warsh's remarks don't necessarily signal an imminent rate hike, they suggest that the central bank may need to take action in the coming months to bring inflation back down. Warsh noted that more than half of goods and services tracked by the government have seen price increases of 3% or higher over the past year.