US inflation tests Fed Chair Warsh ahead of rate decision
In the United States, higher-than-expected inflation data for August have put Federal Reserve Chair Kevin Warsh before a choice ahead of the September 15–16 interest rate meeting. The headline consumer price index rose by 0.4% month on month and by 3.4% year on year. The core measure, which excludes food and energy prices, increased by 0.3% in August.
As CNBC reports, following the release of these data, investors increasingly expect the Fed to raise rates. Warsh previously stated that inflation exceeds the regulator's 2% target, and therefore prices should be the central bank's main priority.
Positions of Fed officials
At the Kansas City Federal Reserve Bank symposium in Jackson Hole in late August, Warsh said that forecasting accuracy for the Fed “is still only an aspiration.” He noted that summer data on the personal consumption expenditures price index and the consumer price index were better than expected, but, in his view, did not indicate a significant improvement in underlying inflation trends.
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According to the latest available data, annual inflation measured by the personal consumption expenditures price index stood at 3.7%. At the same time, Federal Reserve Board member Christopher Waller said on September 3 that the latest statistics point to signs of disinflation. He said he would be prepared to support keeping the target rate range unchanged if this trend were confirmed by subsequent data.
Market rates and political assessments
CNBC also notes that market interest rates rose across the yield curve after Warsh was appointed Fed chair. As of the morning of September 11, the yield on 10-year US Treasury bonds reached 4.95%.
US President Donald Trump called on Warsh to lower rates while stating that he trusts him to make decisions at his own discretion. Some analysts suggested that Warsh might not raise rates before the November 3 midterm elections due to an informal political arrangement. At the same time, CNBC writes that there is no evidence that Warsh was guided by anything other than his own assessment of the economy when making rate decisions.
