US Fed officials keep rate hike in play as inflation clouds Kevin Warsh's first Jackson Hole address

Federal Reserve officials opened the Jackson Hole conference with a warning that could complicate expectations for lower interest rates: inflation remains stubbornly high, and some policymakers believe the central bank may need to raise rates further to bring price pressures back under control.
Kansas City Fed President Jeffrey Schmid, Cleveland Fed President Beth Hammack and Chicago Fed President Austan Goolsbee all voiced concerns about inflation on Thursday as central bankers gathered in Wyoming for the Kansas City Fed's annual economic symposium, Reuters reported.

Their comments came a day after government data showed the Personal Consumption Expenditures Price Index, the Fed's preferred inflation gauge, rose 3.7% in the 12 months through July. The reading was unchanged from June and remained well above the central bank's 2% target.


Schmid said inflation is "still stubborn and it's still sticky and we've got to continue to find ways to break through" and return it to 2%, speaking to CNBC on the sidelines of the conference.

He also questioned whether the Fed's current policy stance was doing enough to restrain the economy. The central bank left its benchmark interest rate in the 3.50%-3.75% range at its July 28-29 meeting.

"I don't know what we're restricting currently with the rate policy that we're at today," Schmid said. He has previously favoured higher rates to bring inflation down, but he stopped short of committing to a hike at the Fed's September 15-16 meeting.

"I think we need a little bit more information. What I'm trying to figure out is the demand side of what's driving both growth and inflation," he said.

Hammack was more direct about the need for action. "I don't want to prejudge anything," she said, "but I believe now is the time to act."

Hammack was one of three Fed officials who dissented at last month's policy meeting in favour of a rate hike. She said inflation has remained above target for more than five years and warned that persistent price pressures could eventually threaten the central bank's credibility, according to Reuters.

She said contacts were increasingly worried about inflation and suggested expectations around prices could become harder to reverse.

"We're starting to get some of that inflationary mindset" embedding itself in the economy, Hammack said. "I don't think we're there yet, but that's what I want to make sure we avoid."

Goolsbee, meanwhile, said his biggest short-term concern remains the possibility that inflation could regain momentum.

"Everybody should be on edge," Goolsbee said on the Rapid Response podcast. "We hear a lot about affordability and we better be mindful because if inflation starts going up again, it's very hard to get rid of it."

He pointed to higher energy costs linked to the war in Iran and shifting tariffs under the Trump administration as additional risks for households already facing elevated prices. There is a danger, he said, that the public could begin to believe above-target inflation is becoming entrenched.

Still, Goolsbee offered a more measured assessment of the latest trend, saying the recent three-month inflation picture "doesn't look terrible." He said rates could eventually be lowered if there is evidence inflation is moving back toward 2%.

"If you're a very interest-rate-sensitive industry, I would tell you, watch the data" and "don't get so hyped up about what the market says" about the monetary policy outlook, Goolsbee said.

The inflation data has split economists, with some arguing that the latest reading supports a rate hike next month, while others see further tightening as a possibility later in the year. Futures markets lean against a September increase but still assign strong odds to a hike by the end of 2026, Reuters reported.

That puts the spotlight on Fed Chairman Kevin Warsh, who is due to speak at Jackson Hole on Friday. Investors will look for clues about the policy outlook, although expectations for clear forward guidance are limited given Warsh's reluctance to offer firm signals on future rates.

Goolsbee also raised concerns about political pressure on the central bank, saying attacks on the Fed "puts me on edge." In countries where political authorities interfere with monetary policy, he said, "inflation comes roaring back."

(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times)