Michael Barr sketched out a conditional path: if the numbers start to clearly show inflation heading toward 2%, he's comfortable taking more time to judge policy. If not, he's ready to back another increase. In his prepared remarks, Barr said, "If trends in the data give me some confidence that inflation is moderating on a path to 2%, then I think we can take a bit more time to assess our policy stance." He added, "However, if inflation appears not to be moderating sufficiently, then I think we should act decisively to raise rates."
Barr said he's worried about "broader price pressures taking hold," pointing out that inflation has sat above the Fed's 2% objective for nearly 5½ years. Even so, he gave the economy a nod: "Consumer spending to date has been largely resilient," he said. "But inflation remains too high - and has been for over five years," he said.
Recent readings put headline inflation at 3.7% over the past year, with the core measure at 3.3%. The Fed gets another look next week, with the consumer and producer price indexes set for release.
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It's a tense moment for policy, with inflation still elevated and Treasury yields climbing. Amid renewed concerns about the precarious situation in the Middle East, the 10-year note moved to levels last seen in mid January 2025. As of Tuesday morning, futures implied about a 66% chance of a rate increase this month, according to CME's FedWatch tool.
Many read Fed Chairman Kevin Warsh's remarks last week as favoring a hike, possibly when the committee meets in two weeks. Barr, a permanent voter on the Federal Open Market Committee, backed July's decision to hold the federal funds rate at a 3.5% to 3.75% target range.
This is a watch-the-calendar stretch. The Fed will see fresh CPI and PPI reports next week, and policymakers gather two weeks from now with markets already assigning odds to another move. Barr's message is straightforward: convincing progress on inflation buys time, and weak progress raises the odds of action. If you're tracking your own money, keep an eye on those updates and the next meeting's outcome.
