Fed Governor Will Back Rate Increase if Inflation Doesn’t Ease 

Federal Reserve Governor Michael Barr said at a banking forum Tuesday that he would be prepared to support an interest rate hike if inflation doesn’t ease.

Speaking at a forum in Washington, D.C., Barr said he’s concerned about “broader price pressures taking hold” as inflation has remained stuck above the Fed’s 2% target for nearly 5½ years, CNBC reported.

“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. “However, if inflation appears not to be moderating sufficiently, then I think we should act decisively to raise rates.”

Barr’s comments come at a critical time for policy and the broader backdrop of elevated inflation and rising Treasury yields, CNBC said. Barr is a permanent voting member on the rate-setting Federal Open Market Committee.

Fed Chairman Kevin Warsh last week delivered remarks in Jackson Hole, Wyoming, that markets widely interpreted as tilted toward a rate hike, possibly as soon as the next policy meeting in two weeks, CNBC noted.

Rates Held Steady

Barr supported the July decision to keep the benchmark funds rate targeted between 3.5%-3.75%, but markets Tuesday morning were pricing in about a 66% chance of an increase this month, according to the CME Group’s FedWatch tool.

CNBC noted that Barr gave the economy good marks even with elevated inflation.

“Consumer spending to date has been largely resilient,” he said. “But inflation remains too high — and has been for over five years,” he said.

The most recent inflation readings showed headline prices up 3.7% over the past year, or 3.3% excluding food and energy, CNBC reported. The Fed will get one more look at inflation data when the consumer and producer price indexes are released next week.

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