Federal Reserve Chair Kevin Warsh has sounded the right notes about being hawkish on inflation. This week, it’s time to act. Raising rates may earn the enmity of President Donald Trump, but it will send an essential message that the central bank remains independent and will not tolerate prices persistently rising by 70 percent above the Fed’s 2 percent target.
The consumer price index rose at a 3.4 percent annual pace for the year ending in August, the same as in July, the Labor Department said on Friday. Higher oil and energy prices, caused by the Iran war and the closure of the Strait of Hormuz, are most to blame, but core prices — which exclude food and energy — rose 0.3 percent in August from July, higher than expected.
The Federal Open Market Committee meets Tuesday and Wednesday to decide on rates. Wall Street is betting on a quarter-point hike, which would be the first increase since July 2023. At their meeting two months ago, three of the 12 FOMC members voted to raise rates, marking the biggest dissent in the same direction in a decade. According to the official minutes from that July meeting, “several” members worried that the massive data center build-out will keep pushing up prices.
Inflation has now run above the 2 percent target for 66 consecutive months. The beast needs to be tamed. This is a stealth tax that diminishes purchasing power and undermines financial security.
Warsh said in July that anyone who thinks the Fed would remain “comfortable” with inflation sticking above target will “be disappointed.” It has become even clearer since then that returning to the target will require the committee’s intervention. It will not be easy: A single quarter-point increase is unlikely to curb price hikes much. More may be needed.
The president has been clear about his preference for rates to come down. Warsh has been clear that monetary policy will not be set by the White House. This is his opportunity to prove it.
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