Kevin Washi, Chair of the Federal Reserve, has intensified the dilemma surrounding next month's interest rate decision with a strong message on inflation during his first Jackson Hole speech since taking office.
On August 30, The New York Times reported that Washi warned that freezing rates amid ongoing price pressures could undermine trust in the Fed's commitment to price stability. Conversely, raising rates could increase political burdens ahead of the November midterm elections.
In his speech on August 28 in Jackson Hole, Wyoming, Washi reaffirmed the Fed's commitment to price stability. He stated, "We must have confidence that core inflation is moving toward our target at a clear and sufficient pace. If not, we have work to do." This suggests that if inflation does not decline rapidly toward the Fed's 2% target, further rate hikes may be necessary.
Washi's firm stance on inflation has raised expectations in financial markets for a rate hike in September. Markets are increasingly anticipating a 0.25 percentage point increase during the Fed's meeting on September 15-16.
However, Washi also indicated that his remarks should not be interpreted as a commitment to a specific future rate path, known as 'forward guidance.'
As a result, the U.S. Consumer Price Index (CPI) report set to be released on September 11 is expected to be a crucial variable. If inflation shows a clear slowdown, it could provide justification for keeping rates steady. Conversely, persistent price pressures may make a rate hike unavoidable.
Even if rates are raised in September, it could demonstrate the Fed's commitment to price stability, but it may also heighten political pressures. This is particularly relevant as President Donald Trump has been vocally advocating for rate cuts to stimulate the economy ahead of the midterm elections, potentially putting him at odds with the Fed.
Additionally, U.S. Treasury Secretary Scott Vilsack has recently shown signs of intervening in the market to lower long-term Treasury yields. In this context, if the Fed raises rates, it could create conflicting financial conditions, complicating efforts to control inflation.
On the other hand, delaying a necessary rate hike for political reasons could undermine the Fed's independence, critics argue.
Chicago Fed President Austan Goolsbee emphasized to The New York Times, "The Fed's timetable is not aligned with the market's or the election's timetable."
In contrast, Harvard University professor Kenneth Rogoff suggested, "If possible, it would be better for the Fed to delay any hikes until after the midterms." He noted that the Fed must consider whether it is better to confront President Trump directly now or to wait quietly until winter to preserve its independence.
* This article has been translated by AI.
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