Warsh Warns Inflation May Require More Rate Hikes

Fed Chair Kevin Warsh has signaled that the US central bank may need to take further action to contain inflation. In his first speech as Fed chair at the Kansas City Fed's annual Jackson Hole symposium, Warsh emphasized that recent improvements in price data have not provided enough evidence of a sustained slowdown.

Warsh noted that the current federal funds rate of 3.5%-3.75% does not appear to be placing significant restraint on the broader economy. He stated that credit and loan markets show limited evidence of policy restraint, although he acknowledged signs of weakness in areas such as housing and agriculture.

The Fed Chair highlighted the breadth of price increases across the economy, stating that about half of the items in the Fed's preferred inflation basket are increasing at an annual rate above 3%, compared with roughly one-third during the two decades before the pandemic. The Personal Consumption Expenditures price index, the Fed's preferred inflation gauge, is currently running at 3.7%, well above the central bank's 2% target.

Warsh emphasized that his approach would focus on responding to incoming data rather than signaling specific policy decisions in advance. He stopped short of saying whether he would support a rate increase at the Fed's September meeting, leaving open the possibility of further policy tightening if price pressures fail to ease sufficiently.