Fed Chair Warsh signals rate hikes may be needed with US inflation stubbornly elevated

Federal Reserve Chair Kevin Warsh, who took over from Jerome Powell in May, indicated on Friday that the central bank may need to raise interest rates in the coming months to combat stubbornly high inflation. Speaking at the Fed's annual conference in Jackson Hole, Wyoming, Warsh acknowledged that recent U.S. reports show inflation has cooled slightly, but he emphasized that these reports do not demonstrate underlying trends have improved significantly.

He stated that the central bank must be confident that underlying inflation is moving towards its 2% objective at a sufficient speed. Although he did not imply an imminent rate hike, Warsh's remarks reassured Wall Street that fighting inflation remains the central bank's priority. Bond market expectations suggest a potential rate hike, with the yield on the two-year Treasury rising from 4.22% to 4.30%.

Warsh emphasized that current interest rates are not constraining economic activity, citing strong business investment in AI and infrastructure, as well as robust consumer spending. Inflation remains above the Fed's target, with the July figure at 3.7%, driven by price increases in over half of tracked goods and services. Warsh aimed to convey a tougher stance on inflation without providing specific guidance on future rate moves, a strategy he has previously criticized.