You know that Federal Reserve Chairman Kevin Warsh has said his Federal Open Market Committee (FOMC) will deal with inflation. Now, members of that committee are calling for raising rates. At the last meeting of the FOMC, three committee members voted to raise rates, including Beth Hammack, Neel Kashkari, and Lorie Logan, all three presidents of regional Federal Reserve banks, Cleveland, Minneapolis, and Dallas, respectively.
In an interview with CNBC, Kashkari explained his inclination to raise rates, saying, “Corporate earnings are through the roof. They’re doing great. The consumer is hanging in there. The labor market is hanging in there. I look at this constellation and I say, what evidence do I have that monetary policy is particularly restrictive right now? So, I argued now is the time to start slowly moving up as we get more data in.”
He continued by saying, “I’m not calling for a dramatic increase in interest rates. I’m simply saying I don’t see evidence of monetary policy [being] marginally restrictive right now, and I think we have more work to do to get inflation back down. And I would rather get going now in small steps than wait till later, then we have a really entrenched inflation problem and have to raise rates aggressively.”
But the feeling that rates might need to rise isn’t held only by regional bank presidents. Federal Reserve Board Governor Lisa Cook said during a speech in Alaska that “Inflation is too high, and I consider the risks to the inflation side of the dual mandate higher than the risks to the employment side at this point. As such, I am prepared to act by raising rates, if necessary.”
She continued, “If I do not see signs of continued disinflation soon, I am prepared to act. With five years of above-target inflation, the risk grows that higher inflation may become entrenched in price- and wage-setting behavior, leading to persistence that would be much harder for us to attack. The longer inflation is above target, the more likely this scenario becomes.”
In what direction will Chairman Warsh take the Fed at its next meeting in September? That will probably rely heavily on future inflation data. The last CPI report gave those hoping for lower rates some hope as monthly prices declined, pushed down by lower energy prices during the brief lull in the war with Iran. With prices for oil back up and tensions still high, it remains to be seen what will happen in next month’s data.
Action Line: What you do know is that Your Survival Guy will be watching. And when you want to talk about inflation and rates and your investment portfolio, email me at ejsmith@yoursurvivalguy.com. And click here to subscribe to my free monthly Survive & Thrive letter.
