Warsh Warns of Rate Hikes to Combat Stubborn Inflation

Fed Chair Kevin Warsh has signaled that rate hikes may be needed to combat stubborn inflation. Speaking at the Fed's annual conference in Jackson Hole, Wyoming, he acknowledged that recent US reports show inflation has cooled a bit but remains above the central bank's 2% target.

Warsh stated that 'we must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do.'

The comments from Warsh appeared to reassure Wall Street that fighting inflation remains a priority for the central bank. He pointed out that data showing inflation remains stubbornly above 2%.

Warsh's remarks did not imply an imminent rate hike but dismissed perceptions that inflation is no longer a threat. He noted that more than half of goods and services tracked by the government have seen price increases of 3% or higher in the past year, which is well above the pre-pandemic average.

The Fed's next meeting is scheduled for September 15-16, and Wall Street investors now see a rate hike as a coin flip, according to futures pricing tracked by CME FedWatch. The yield on the two-year Treasury moved from 4.22% to 4.30%, indicating expectations of short-term yields moving higher.