Fed’s Barr says future interest rate hikes ‘likely’ needed to tame inflation

Federal Reserve Governor Michael Barr said Wednesday the central bank will “likely” raise interest rates again to counter persistent inflation, after it did so last week for the first time in three-plus years.

Barr, a member of the rate-setting Federal Open Market Committee (FOMC), said the unanimous decision to raise the benchmark interest rate by a quarter point was the “right” one, given that inflation “is above our 2 percent target and not clearly trending toward target in a timely way.”

The Fed governor added, “In my base case, further policy adjustments are likely to be needed to ensure inflation comes down to target in a timely fashion,” during a housing affordability summit hosted by the Federal Reserve Bank of Chicago. 

After the FOMC raised rates to a range of 3.75 percent to 4 percent, Fed Chair Kevin Warsh said the move will “support a timelier return” to the committee’s goal of 2 percent inflation. 

Annual inflation has remained above that target since March 2021 and was 3.4 percent last month, as measured by the consumer price index. 

“The plain fact is that inflation is too high and has been for too long,” Warsh told reporters last week. “This summer’s inflation readings do not tell me that underlying trends have meaningfully improved.”

While Warsh abstained from predicting future rate decisions for the FOMC’s quarterly projections, 12 of 18 FOMC officials said the panel would hike rates once more this year — with a quartet forecasting two quarter-point increases. 

Barr did not comment on his projections Wednesday, but he noted the central bank wants to “support sustainable, durable growth in support of maximum employment,” adding price stability “is crucial” to that goal.

“We needed to recalibrate monetary policy to reflect the balance of risks to our mandate goals,” the Fed governor remarked, after referencing economic risks posed by the Iran war, the Russia-Ukraine conflict and a “surge in investment demand to support” the artificial intelligence buildout. 

Traders are pricing in a nearly 70 percent chance the FOMC will hike interest rates by a quarter point at its next meeting in late October, according to the CME Group’s FedWatch tool. That marked a probability jump of 14-plus points from Tuesday, before Barr spoke at the Chicago Fed. 

The FOMC’s next meeting, set for Oct. 27-28, will conclude less than a week before the midterm Election Day. After that, the panel will meet in early December, before the calendar shifts to 2027.

While multiple Republican senators backed the Fed’s decision to raise rates last week, President Trump continued his calls for the central bank to cut rates.