Warsh Warns of Higher-For-Longer Reality as Inflation Remains Above Target

Fed Chair Kevin Warsh has signaled that policymakers may need to take action to combat inflation. Despite waiting, inflation remains above the Fed's 2% target, and several forces pushing prices higher are still in place.

The Bureau of Economic Analysis reported July PCE inflation at 3.7%, while core PCE rose 3.3%. Meanwhile, consumer prices increased by 3.4% over the 12 months through July. Warsh stated that policymakers have 'work to do' if inflation doesn't move toward 2% quickly enough.

The Fed's problem is compounded by conflicting policies from the Treasury Department, which is working to lower borrowing costs through long-term Treasury buybacks and cash account purchases. This puts monetary and fiscal policy at cross-purposes: Warsh may need tighter financial conditions to restrain inflation, while the Treasury is trying to ease them.

Tariffs and energy prices also continue to contribute to inflationary pressures. A Federal Reserve Bank of New York study found that 26% of tariff increases were passed through to consumer prices, with indirect effects taking up to nine months to appear.