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Fed Faces Shadowboxing Inflation as Rate Hike Looms

5:10 PM ETConfirmed

Business Desk

In Short: Kevin Warsh and his team at the Federal Reserve are accused of shadowboxing inflation, as they grapple with rising consumer prices and other economic pressures.

Federal Reserve Chair Kevin Warsh is facing mounting pressure to raise interest rates as inflation remains stubbornly high, despite efforts to combat it.

By the M2 metric, inflation is currently running at around 5 percent, signaling persistent monetary inflation.

According to economist Milton Friedman, inflation is fundamentally a monetary phenomenon, resulting from an increase in the supply of money and credit.

However, other factors such as oil shocks can also contribute to price inflation, complicating the Fed's efforts to address the issue.

The upcoming Federal Reserve meeting is expected to result in a rate hike, with economists now all but certain of this outcome.

The Bureau of Labor Statistics reported that inflation remained elevated at 3.4% in August, reinforcing expectations for a rate hike.

Traders are waiting on the sidelines ahead of the Fed's interest rate decision, with hotter US inflation data bolstering expectations for a rate increase.

The Federal Reserve's ability to address inflation stemming from supply shocks, such as the Middle East war and tariffs, is limited.

Policymakers are widely expected to raise the central bank’s key interest rate this week to fight inflation.

The last time the Fed raised rates, between 2022 and 2023, inflation plunged from four-decade highs, nearly reaching the target by 2025.

What this adds

Background

What's confirmed

• Federal Reserve Chair Kevin Warsh is facing mounting pressure to raise interest rates as inflation remains stubbornly high, despite efforts to combat it.
• By the M2 metric, inflation is currently running at around 5 percent, signaling persistent monetary inflation.
• According to economist Milton Friedman, inflation is fundamentally a monetary phenomenon, resulting from an increase in the supply of money and credit.
• However, other factors such as oil shocks can also contribute to price inflation, complicating the Fed's efforts to address the issue.
• The upcoming Federal Reserve meeting is expected to result in a rate hike, with economists now all but certain of this outcome.
• The Bureau of Labor Statistics reported that inflation remained elevated at 3.4% in August, reinforcing expectations for a rate hike.
• Traders are waiting on the sidelines ahead of the Fed's interest rate decision, with hotter US inflation data bolstering expectations for a rate increase.
• The Federal Reserve's ability to address inflation stemming from supply shocks, such as the Middle East war and tariffs, is limited.
• Policymakers are widely expected to raise the central bank’s key interest rate this week to fight inflation.
• The last time the Fed raised rates, between 2022 and 2023, inflation plunged from four-decade highs, nearly reaching the target by 2025.

What's still developing

• All that said, there is plenty of inflation in the system.
• Mind you, they should certainly be battling inflation.
• Price inflation – rising consumer prices – is one symptom of this monetary inflation.
• The difference between a price shock and inflation is that a price shock only raises some prices.
• Monetary inflation causes a rise in the general price level, and it’s the only thing that produces such an effect.
• As economist Milton Friedman put it, “Inflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.” Don't get me wrong.
• It would also mean that Fed Chair Kevin Warsh, long viewed as an inflation hawk, may be willing to risk the ire of President Donald Trump, who is threatening to halt trade with America’s key partners if the Fed doesn’t cut rates.
• Dickens said the Federal Reserve “will be very concerned” that inflation could become deeply entrenched in the way businesses set prices and workers negotiate wages, making it more persistent than it would otherwise be.
• The study noted that the Fed is less likely to act on monetary policy before a midterm election, but has made moves “on occasion” when confronted with serious economic crises or concerning inflation levels.
• Jai Kedia, a research fellow at the Cato Institute’s Center for Monetary and Financial Alternatives, a research organization within the Washington, D.C.-based think tank, said he thinks a rate hike is the likely outcome given positive signs in the labor market and stubbornly high inflation.
• The administration, led by Treasury Secretary Scott Bessent, has repeatedly characterized the rise in inflation as transitory and linked to the war with Iran.
• Friday’s US inflation report showed that prices remain stubbornly high and core inflation, which excludes volatile food and energy, picked up in August from the previous month.

Sources

• FXStreetlink
• Newslink
• Fxstreetlink
• Cnbcafricalink
• Investopedialink
• AFPlink
• Tradingkeylink
• Englishlink
• Economictimeslink
• Businesstimeslink
• Nationalmortgageprofessionallink
• BBClink
• Tradingpedialink
• WarpBeat — background on Federal Reserve Expected to Hike Rates Amid Persistent Inflation link
• WarpBeat — background on Federal Reserve Expected to Hike Interest Rates Amid Persistent Inflation link
• The Ramsey Show Highlights — video link