Federal Reserve Chair Kevin Warsh faces his first major test next week as markets bet on a rate hike on September 16, even as President Donald Trump pressures the central bank to cut borrowing costs.
The dilemma has become sharper after back-to-back inflation readings pointed to renewed price pressures. The Consumer Price Index increased 0.4% last month after edging up 0.1% in July, the Labor Department's Bureau of Labor Statistics said. In the 12 months through August, consumer inflation advanced 3.4%.
The data have pushed markets further towards a rate hike. Soon after the CPI data was published on Friday, financial markets priced in a roughly 91% chance of a rate hike next week, up from about 72% on Thursday, according to CME's FedWatch tool, as reported by Reuters.
For Warsh, the decision he takes is not only about market expectations but also about his own credibility and the Fed’s independence.
At Jackson Hole last month, Warsh clearly articulated that policymakers should be confident that underlying inflation was moving towards the central bank’s 2% target; otherwise, they had “work to do.”