Fed Officials Point to Possible Further Rate Increases as Warsh Reshapes Central Bank

Federal Reserve officials indicated that additional interest-rate increases may be needed after the central bank unanimously approved a quarter-point hike last week, its first increase since 2023.

Fed official Michael Barr said more increases would probably be necessary to return inflation to the central bank’s 2% target, according to The Wall Street Journal. New York Fed President John Williams separately said another U.S. rate increase this year would be reasonable, Yahoo Finance reported.

Chair Kevin Warsh also appears likely to support further increases if inflation remains elevated, CNBC reported. The Fed’s preferred personal consumption expenditures measure rose 3.7% from a year earlier in July and has remained above the 2% target for more than five and a half years.

Markets are anticipating additional tightening. CNBC reported that the two-year Treasury yield traded nearly one percentage point above the effective federal funds rate on Wednesday, the widest such gap since 2023. A former Dallas Fed president, however, told MarketWatch that bond investors were pricing in too many increases.

During his first 127 days as chair, Warsh has shortened post-meeting news conferences and altered other communication practices. His effort to reduce the Fed’s balance sheet has stalled as policymakers focus on inflation, while five task forces examining central bank practices are expected to report early next year, according to CNBC.