Warsh Suggests Interest Rate Hikes May Be Needed to Tame Elevated Inflation

Federal Reserve Chair Kevin Warsh signaled that inflation is still too high and may require interest rate hikes to bring it down. Speaking at the Fed's annual conference in Jackson Hole, Wyoming, Warsh acknowledged that recent U.S. data show inflation has cooled a bit, but 'they do not tell me that underlying trends have meaningfully improved.'

Warsh emphasized that the central bank must be confident that underlying inflation is moving towards its 2% target at sufficient speed. He pointed to robust business investment in AI equipment and infrastructure and strong consumer spending as evidence that interest rates are currently not restricting economic activity.

The Fed chair also noted that inflation data 'are more concerning' than trends on the job market, where the unemployment rate is low. He argued that inflation is unlikely to move back to the target on its own and suggested that short-term interest rates are the 'predominant tool' the Fed can use to lower inflation.