Fed chair signals interest rate hikes may be needed
Kevin Warsh at his Senate confirmation hearing in April. (Graeme Sloan/Bloomberg)
Key Takeaways:
- Federal Reserve Chair Kevin Warsh said Aug. 28 that inflation is still too high and suggested the central bank may have to raise interest rates in the coming months to bring it down, a clearer signal than he had sent previously about
- Warsh said recent inflation data show some cooling but do not demonstrate meaningful improvement in underlying trends toward the Fed’s 2% target.
- The Fed meets Sept. 15-16, and Warsh said rates may not be sufficiently restrictive though he stopped short of signaling a specific action.
JACKSON HOLE, Wyo. — Federal Reserve Chair Kevin Warsh said Aug. 28 that inflation is still too high and suggested the central bank may have to raise interest rates in the coming months to bring it down, a clearer signal than he had sent previously about his economic outlook.
In his first high-profile speech at the Fed’s annual conference, Warsh acknowledged in prepared remarks that recent inflation reports show it has cooled a bit, but “they do not tell me that underlying trends have meaningfully improved.”
“We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed,” Warsh said. “Otherwise, we have work to do.”
The Fed chair, who replaced his predecessor, Jerome Powell, on May 22, is facing high stakes with his speech as questions have swirled around Wall Street about his focus on fighting inflation.
Those concerns may have contributed to rising bond yields. Warsh has said he doesn’t want to provide what analysts call “forward guidance” about whether the Fed will hike or cut rates or stay on hold at upcoming meetings. He argues that it limits the Fed’s flexibility by committing it to a specific policy.
Yet some economists have argued that he could say more about his views on Fed policy without tipping his hand about future actions.
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Warsh on Aug. 28 reiterated his skepticism about providing such guidance or even outlining his broad approach to interest-rate policy.
But he did suggest that interest rates currently aren’t restricting economic activity, pointing to robust business investment in AI equipment and infrastructure and strong consumer spending. As a rule of thumb, interest rates often need to be high enough to limit borrowing and spending to cool inflation.
The Fed next meets Sept. 15-16, and Warsh’s remarks don’t necessarily signal the central bank will raise rates then.