Fed Governor Barr Says, "If Inflation Does Not Ease, We Must Move Decisively to Raise Rates"

[Financial News New York = Reporter Lee Byung-chul]Concerns are growing inside the Federal Reserve System (Fed) that interest rates may need to rise again if inflation does not come under control. After Kevin Warsh left open the possibility of a rate hike, Michael S. Barr, a permanent voting member of the Federal Open Market Committee (FOMC), also said that if prices do not slow enough, the Fed must "move decisively to raise rates." As inflation worries resurface on higher energy prices from the Middle East, a surge in U.S. Treasury yields is also heightening tension in financial markets ahead of this month's FOMC meeting.
At a banking forum in Washington, D.C., on the 1st local time, Barr said, "If it appears that inflation is not slowing enough, we must act decisively to raise rates." He stressed that inflation has remained above the Fed's 2% target for nearly five and a half years, adding that he is concerned about "the entrenchment of broad-based price pressures."
He also said there would be no need to rush into additional tightening if future price data show a slowdown. Barr noted, "If the data give us some confidence that inflation is easing toward 2%, then we can take a little more time to assess the policy stance."
Barr's remarks came as markets grew more wary that the Fed's policy direction could shift from holding rates steady back toward another increase. As a Fed governor, Barr has a permanent vote on the FOMC, which sets the benchmark rate. He voted in favor of keeping the benchmark rate unchanged at 3.50% to 3.75% at the July FOMC meeting.
According to the CME FedWatch Tool, the futures market on the morning of the day priced in about a 66% chance that the Fed would raise rates at the September FOMC meeting. Just in July, the Fed had held the benchmark rate steady, but within two months the market's focus has shifted toward another increase.




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