Federal Reserve raises interest rates as Warsh says inflation is too high

The Federal Reserve has raised U.S. interest rates, with Chair Kevin Warsh saying inflation remains too high. All 12 voting members supported the increase.

The Federal Open Market Committee (FOMC) voted unanimously on Wednesday to raise its benchmark rate by a quarter percentage point to a range of 3.75% to 4%.

“The plain fact is that inflation is too high and has been for too long,” Warsh said at a press conference. “This summer’s inflation readings do not tell me that underlying trends have meaningfully improved.”

Warsh said the Fed estimated that prices measured by the Personal Consumption Expenditures (PCE) index rose about 3.6% in the 12 months through August, based on the latest consumer and producer price data. He put core PCE inflation at about 3.2% and core Consumer Price Index inflation at about 2.4%.

Too many categories were still recording price increases above 3% over both six- and 12-month periods, he said, adding that rising commodity prices also needed attention.

“We must be confident that underlying inflation is moving to our objective clearly and at sufficient speed,” Warsh said. “Today, the FOMC decided that this standard has not been satisfied.”

Warsh said stronger hiring, private-sector earnings and business investment showed the economy was improving despite geopolitical uncertainty. Credit was flowing freely, particularly to businesses, and he said the committee broadly agreed that financial conditions were not restrictive.

“So we removed a dose of accommodation,” he said.

The unemployment rate remained around 4.1%, while job openings and weekly working hours had increased, according to Warsh. He said unemployment claims were consistent with full employment, allowing the Fed to focus primarily on inflation, which had remained above target for more than five years.

“The decision we made today was a sober decision, a serious decision, a responsible decision,” he said. “I’m not going to prejudge any future decisions we make.”

A reporter also asked whether the increase tested the Fed’s independence, citing a recent statement in which the president had threatened to cut off trade with certain countries unless rates were lowered.

“Part of the independence of the Federal Reserve is we stay in our lane. Independence is a two-way street,” he said. “We let people that do trade policy and fiscal policy stay in their lane, too. That’s how we can stand up here and call them the way we see them.”