Federal Reserve Governor Michael Barr stated that additional interest rate hikes are likely needed to bring inflation down to the central bank's 2% target. His remarks, scheduled for delivery in Chicago, follow similar sentiments from other policymakers, fueling expectations for more rate increases in the coming months. Barr emphasized that "further policy adjustments are likely to be needed to ensure inflation comes down to target in a timely fashion" to support "sustainable, durable growth in support of maximum employment, and price stability is crucial."
Barr's comments were made after the Federal Open Market Committee (FOMC) unanimously decided to raise the benchmark interest rate by a quarter point. He described this adjustment as being "in the right direction" given that inflation remains above the 2% target and is not clearly trending downwards in a timely manner. The annual inflation rate was 3.4% last month, as measured by the consumer price index, and has been above the target since March 2021.
Looking ahead, market traders are pricing in nearly a 70% chance that the FOMC will implement another quarter-point interest rate hike at its next meeting in late October. This marks a significant jump of over 14 points in probability from the previous day, before Barr's speech. While Fed Chair Kevin Warsh abstained from predicting specific future rate decisions, 12 out of 18 FOMC officials had indicated support for at least one more rate hike this year in the forward-looking dot plot published last week, with four forecasting two quarter-point increases. Barr also noted economic risks from the Iran war, the Russia-Ukraine conflict, and increased investment demand for artificial intelligence.
