Warsh Warns of Potential Rate Hikes to Tame Stubborn Inflation

Fed Chair Kevin Warsh indicated that interest rates may need to rise to combat inflation at its current levels. Speaking at the Fed's annual conference in Jackson Hole, Wyoming, Warsh said that recent data shows inflation has cooled down slightly but still remains above the central bank's 2% target.

Warsh emphasized that underlying trends have not improved meaningfully and that the Fed must be confident that inflation is moving towards its objective at a sufficient speed. He noted that 54% of goods and services tracked by the government have seen price increases of 3% or higher in the past year, well above the 32% seen in the two decades before the pandemic.

The Fed chair's comments were seen as reassuring to Wall Street, which had been concerned about the Fed's priority on fighting inflation. However, some economists expressed skepticism that Warsh's remarks would lead to a rate hike at the upcoming meeting on September 15-16.

Warsh reiterated his stance against providing forward guidance on interest-rate policy, saying it limits the Fed's flexibility by committing it to a specific policy. He also pointed out that short-term interest rates are the 'predominant tool' the Fed can use to lower inflation.