Fed Governor Michael Barr Signals Support for Interest Rate Hikes if Inflation Stays High
Federal Reserve Board member Michael Barr said he is prepared to support further interest rate increases if inflation does not slow sufficiently toward the central bank’s 2% target.
Speaking at a banking forum in Washington, Barr warned that inflation has remained above the Federal Reserve’s target for nearly five and a half years, increasing the risk that broader price pressures could become permanently embedded in the US economy.
In prepared remarks, Barr said, “If the trends in the data give me confidence that inflation is moderately moving toward the 2 percent target, I think we can take some more time to assess our policy stance. However, if inflation does not appear to be slowing sufficiently, we must act decisively and raise interest rates.”
Markets Raise Expectations for a Fed Rate Hike
Barr’s comments come as US inflation remains elevated and bond yields rise again. As a member of the Federal Reserve Board of Governors, Barr is one of the permanent voting members of the Federal Open Market Committee (FOMC), which determines US monetary policy.
US Treasury yields climbed on Tuesday amid growing concerns about developments in the Middle East. The benchmark 10-year Treasury yield reached its highest level since mid-January 2025.
Remarks last week by Federal Reserve Chairman Kevin Warsh, which markets viewed as signaling a more hawkish approach to interest rates, further strengthened expectations of a rate increase. Investors interpreted Warsh’s comments as suggesting that the Fed could raise rates at its next monetary policy meeting in two weeks.
Barr supported the Fed’s decision in July to keep its policy rate unchanged in the 3.50-3.75 percent range. CME Group’s FedWatch tool showed that markets were pricing in an approximately 66 percent probability of a Fed rate hike this month as of Tuesday morning.
Barr Says US Economy Remains Resilient
Despite persistent inflation, Barr said the overall outlook for the US economy remains resilient.
“Consumer spending has so far remained largely resilient,” Barr said, adding, “Inflation is still very high and has been for more than five years.”
According to the latest data, headline US inflation was 3.7 percent year-on-year. Core inflation, which excludes food and energy prices, stood at 3.3 percent.
*This is not investment advice.
