Warsh's Hawkish Stance Puts Trump's Inflation Record Under Microscope

US Federal Reserve Chairman Kevin Warsh has to decide how to follow through on his words about higher interest rates, which he opened up last week. He will face intense scrutiny if the data for August does not align with the decision made by the committee in September.

Warsh's speech at the Kansas City Fed's annual Jackson Hole conference in Wyoming was seen as a strong signal that the central bank may raise interest rates to curb inflation, which has been stuck above the 2% target. He emphasized the need for underlying inflation to move towards the target, and warned that the Fed would have work to do if it is not confident.

The odds of a rate hike later this month jumped after Warsh's remarks at Jackson Hole, and again on Monday following renewed US strikes on Iran and another rise in long-term US government debt yields. Three of the 12 voting policymakers were ready to raise rates at the previous meeting and dissented against leaving them unchanged.

Warsh will have to balance his commitment to fighting inflation with the risk of a slowdown in consumer spending, which could lead to demand erosion. He also has to consider the political implications of a rate hike ahead of key congressional elections on November 3.