Warsh Signals Rate Hikes May Be Needed to Tame Elevated Inflation

Federal Reserve Chair Kevin Warsh signaled that interest rate hikes may be necessary to combat elevated inflation in the US economy. Speaking at the Fed's annual conference at Jackson Hole, Wyoming, Warsh acknowledged that recent data shows inflation has cooled slightly, but still remains above the central bank's target of 2%. 'We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed,' he said.

Warsh emphasized that short-term interest rates are the 'predominant tool' the Fed can use to lower inflation. He also noted that inflation data 'are more concerning' than trends on the job market, where the unemployment rate is low. The Fed chair pointed out that in the past year, 54% of goods and services tracked by the government have seen price increases of 3% or higher.

Warsh's remarks come as questions swirl around Wall Street about his focus on fighting inflation. Analysts expect the Fed will keep rates unchanged when it meets next in mid-September, but some investors are betting the central bank will hike rates by December. The rate on the 30-year Treasury bond has steadily risen in recent weeks due to factors such as burgeoning US government deficits and outsize borrowing by tech firms building AI infrastructure.