WASHINGTON — Federal Reserve Gov. Michael Barr said Tuesday the central bank should be prepared to raise interest rates if inflation does not show sufficient progress toward the Fed’s 2% target, according to Yahoo Finance.
Barr’s comments come just over two weeks before the Federal Reserve’s next policy meeting, scheduled for Sept. 16, and follow Fed Chair Kevin Warsh’s signal last week that another rate increase remains a possibility.
“If trends in the data give me some confidence that inflation is moderating on a path to 2%, then I think we can take a bit more time to assess our policy stance,” Barr said in prepared remarks, according to Yahoo Finance. “However, if inflation appears not to be moderating sufficiently, then I think we should act decisively to raise rates.”
The Fed is scheduled to receive two additional reports on consumer and wholesale inflation next week before policymakers meet.
Inflation Data Sending Mixed Signals
Recent inflation readings have provided conflicting signals about the direction of prices, Yahoo Finance reported.
The Consumer Price Index produced cooler inflation readings in June and July, while the Personal Consumption Expenditures price index, the Fed’s preferred inflation measure, has shown more persistent price pressures.
Barr said inflation remains too high and cited several factors that have complicated the Fed’s efforts to return inflation to its 2% target, including tariffs, conflict in the Middle East and rapid investment related to artificial intelligence.
“With inflation above target for a protracted period, there is a risk of broader price pressures taking hold, a risk I am watching closely,” Barr said.
Barr described the labor market as stable, with unemployment remaining relatively low, and said the broader economy remains solid. He cited AI-related business investment as one factor supporting economic growth.
Markets Increase Bets on Rate Hike
Barr’s comments follow Warsh’s closely watched speech Friday in Jackson Hole, Wyo., in which the Fed chair suggested current interest rates might not be sufficiently restrictive.
“I would be hard-pressed to describe broad financial conditions as restrictive,” Warsh said, according to Yahoo Finance.
Financial markets have increased their expectations for a September rate increase following Warsh’s remarks.
Traders were pricing in a 66% probability of a rate hike at the Fed’s September meeting, up from slightly more than 30% before Warsh’s Jackson Hole speech, Yahoo Finance reported.
