Fed's Preferred Inflation Gauge Jumps Again, Raising Pressure On Warsh

Both measures now sit far above the Fed's 2% target and land at a defining moment for newly installed Fed Chair Kevin Warsh.

The latest figures arrive as energy prices climb on escalating geopolitical tensions involving Iran, while resilient consumer spending, elevated wage growth and massive investment across AI and tech continue to fuel demand across the US economy.

Treasury yields moved higher immediately after the inflation data as investors rapidly repriced expectations for monetary policy.

Nigel Green says investors are underestimating how aggressively the Fed may now need to respond.

Warsh has repeatedly argued in recent years that the Federal Reserve waited too long to confront inflation after the pandemic and allowed price pressures to become embedded across the economy. He has also publicly supported a tougher stance on inflation and tighter monetary discipline.

Those positions now leave the new Fed chair with little room to soften his approach.

Federal Reserve officials are already signalling growing concern. Governor Lisa Cook said this week she would support further rate hikes if inflation fails to cool, underlining how rapidly the policy debate is shifting back toward tightening.

Nigel Green says the possibility of another rate increase is now firmly back on the table.

Nigel Green concludes that the central bank is increasingly likely to keep rates elevated for longer than markets currently expect as officials attempt to stop inflation becoming entrenched again across the economy.

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