Warsh Signals Rate Hikes May Be Needed to Combat Elevated Inflation

Federal Reserve Chair Kevin Warsh has signaled that interest rate hikes may be necessary to combat elevated inflation. In his first high-profile speech at the Fed's annual conference in Jackson Hole, Wyoming, Warsh acknowledged that recent US data show inflation has cooled, but 'they do not tell me that underlying trends have meaningfully improved.'

Warsh emphasized the importance of bringing down inflation to the central bank's 2% target, stating that interest rates currently aren't restricting economic activity. He pointed to robust business investment in AI equipment and infrastructure, as well as strong consumer spending.

The Fed chair noted that 54% of goods and services tracked by the government have seen price increases of 3% or higher over the past year, which is 'well above' the 32% that saw such increases in the two decades before the pandemic. Warsh also reiterated his skepticism about providing forward guidance on interest-rate policy.

The Fed next meets September 15-16, and while Warsh's remarks don't necessarily signal a rate hike then, they indicated that rates may not be high enough to bring inflation down. Most analysts expect the Fed to keep rates unchanged at the upcoming meeting.