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Fed Governor Barr: will support a rate hike if inflation doesn’t ease
CNBC reports Fed Governor Michael Barr says he would back a rate hike unless inflation shows convincing signs of moving back to the Fed’s 2% target, citing concern about broader price pressures and the need for evidence before changing policy.
Fed Governor Michael Barr said he would support a rate hike unless inflation shows convincing signs of easing back towards the Fed’s 2% goal. Barr’s remarks were framed as conditional: if the data give him confidence that inflation is moderating on a path to 2%, he said the Fed can take more time to assess policy, but if inflation appears not to be moderating sufficiently, he indicated the Fed should “act decisively” to raise rates.
Barr also set out why he remains uneasy. He said inflation has been above target for nearly 5½ years and that he is concerned about “broader price pressures taking hold.” At the same time, he gave the economy decent marks, pointing to consumer spending being “largely resilient,” even though inflation remains too high.
The backdrop to the comments includes rising Treasury yields and market expectations that the Fed may act soon. CNBC notes that markets were pricing around a 66% chance of an increase at the upcoming meeting, using CME’s FedWatch, and it references recent inflation readings of 3.7% headline and 3.3% excluding food and energy over the past year. Barr also flagged that the next CPI and PPI releases are due before the Fed’s next decision point.
For FX traders, the key next watch is whether incoming inflation prints provide the “confidence” Barr is demanding. If not, his framework supports continued upside risk to the path of policy expectations.
Why this matters for FX
This is directly relevant to FX because Barr’s conditional hawkishness affects expectations for the Fed’s path for the federal funds rate. If markets believe Barr would support tightening unless inflation clearly moderates, that tends to lift US rate expectations and US interest-rate differentials, influencing USD pricing via yields and the pricing of future policy.