United States Federal Reserve Chairman Kevin Warsh said the US central bank will “have work to do” if policymakers are not confident that underlying inflation is returning to its 2 percent target. On Friday, Warsh stressed that financial conditions do not appear restrictive enough, the closest he has come to acknowledging that interest rate hikes may be needed to ease price pressures. Warsh did not suggest a timeline for rate hikes and stressed that his comments should not be taken as “forward guidance”.
However, it is becoming increasingly probable that a rate hike could be on the way. CME Group’s FedWatch, which tracks the likelihood of monetary policy decisions, shows a 57.4 percent chance that the central bank will raise rates by 25 basis points at its next meeting in mid-September. He added that the data does “not tell me that underlying trends have meaningfully improved”.
He stressed that inflation shown in the PCE report has been increasing by 3 percent, which is well above pre-pandemic levels. Warsh’s speech “delivered a far clearer – and hawkish – message than his last press conference appearance,” Capital Economics analysts wrote in a note to clients. He said the recommendations from the five task forces the central bank created will come later and will address “future policy challenges”.
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