US Federal Reserve chief opens door to rate rises in September
The most recent communication from US Federal Reserve chairman, Kevin Warsh, indicates rate rises may be on the agenda, according to Rupert Thompson, chief economist at IBOSS.
He said that while events in Iran have been significant, “Markets, however, were arguably more concerned last week with events in Wyoming than the Strait of Hormuz.
“After a distinctly underwhelming first few months as Fed Chair, Kevin Warsh took the opportunity at the annual central bankers’ get-together to regain some credibility with an unexpectedly hawkish speech.
“Warsh described the US inflation numbers as concerning and fuelled expectations that rates could well be raised at the next Fed meeting on 17 September with his comment that: ‘we must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed… otherwise, we have work to do’.
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He said the global economy has so far proved “surprisingly resilient” in the face of the oil price shock that is the consequence of the current conflict in the Gulf.
Thompson’s view is that short-term labour market data from the US will be a significant factor in determining the immediate direction of monetary policy.
He said the hawkish line from Warsh — which comes at a time when inflation is over 3 per cent and above the Federal Reserve target rate of 2 per cent, may lead to a clash with Donald Trump as the latter has expressed the persistent view that US base rates should come down.