Fed's Warsh: U.S. Rate Hike Likely if Inflation Persists


   
Barani Krishnan
DTN Refined Fuels Market Reporter

   SECAUCUS, NJ (DTN) -- Federal Reserve Chair Kevin Warsh signaled Friday 
(8/28) that the central bank could raise interest rates if inflation fails to 
return to its 2% target promptly.

   "This summer's inflation data is better than expected, but do not tell me 
underlying trends have meaningfully improved," Warsh said in his keynote 
address at the Kansas City Fed's annual economic symposium in Jackson Hole, 
Wyoming.

   The Fed chair reminded his audience that price stability remained the Fed's 
primary focus, and that current financial conditions were hard to describe as 
restrictive amid persistent inflationary pressure.

   "We must be confident that underlying inflation is moving to our objective, 
clearly and at sufficient speed. Otherwise, we have work to do," Warsh said, 
suggesting that interest rates -- which the Fed has held unchanged in a range 
of 3.50% to 3.75% since December -- might have to be raised.

   Separately, media reports said money market traders see a hike on the cards 
at the Fed's next rate decision in September -- its first in six meetings

   Warsh's comments come in the wake of July's Consumer Price Index (CPI), 
which rose 3.4% year-over-year, slowing only slightly from June's 3.5% rate as 
energy cost pressures eased. On a monthly basis, the headline inflation number 
edged up 0.1%, driven primarily by shelter costs. Core CPI -- which excludes 
volatile food and energy components -- increased 0.2% on the month to land at 
2.5% annually.

   Supporting Warsh's caution, the University of Michigan's final August survey 
released Friday showed year-ahead inflation expectations at 4% -- substantially 
above the 3.4% reading seen in February prior to the start of the Iran war.




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