Warsh's Rate Hike Decision Hangs by September Inflation Thread
Kevin Warsh's decision on interest rates at this month's FOMC meeting hangs in the balance as the US releases its inflation report on September 11. Trump warned Warsh not to raise rates, saying he would stop trading with countries that run a trade surplus with America if he does.
Last week's strong jobs report shifted the debate, making upside risks to inflation outweigh downside labor market risks. With consensus expecting a 0.2% core CPI increase from August to September, Warsh is likely to hold rates steady rather than hike.
BMO's Ian Lyngen disagrees, saying a low bar for inflation data to favor a rate increase exists even as he predicts a hawkish hold on the 16th. The bank also highlighted upcoming changes to PCE inflation methodology that could lower core PCE by 0.2ppt.
A hot read on core CPI from the BLS would leave Warsh in a tough spot, as he painted himself into a corner at Jackson Hole with his commitment to price stability. A hold following a hot jobs report and warm CPI would be seen as evidence of politicization, given Trump's pressure campaign.