Fed Chair suggests higher interest rates coming

Federal Reserve Chairman Kevin Warsh warned on Friday that the central bank may raise interest rates in the near future to try to offset continued inflation. The new Fed Chair delivered his first high-profile address in western Wyoming at the Federal Reserve’s annual conference. Inflation continued running at 3.7%, above the Fed’s target of 2%, Warsh said.

He acknowledged that recent reports showed better than expected inflation numbers, but said he remained cautious since slight changes did not mean meaningful improvement in the underlying causes of inflation. Fed officials felt it was wise to wait for more information before making any interest rate decisions, especially given the possible changes in supply chains, investment patterns, and geopolitics, he said.

Warsh said he was impressed that the economy appeared to be strengthening, and Main Street and Wall Street remained remarkably resilient. He also noted a 9% rise of investment in equipment and intangible, nonphysical assets. It’s the highest growth rate since 2021 and likely attributed to the buildout of artificial intelligence, Warsh said. Profits made by S&P 500 companies grew over 20% over the last year, with elevated profit margins and low market volatility, he added.

Warsh also characterized the U.S. labor market as stable, with unemployment at just over 4%, a low by historical standards. He cited recent graduates as an area of concern within the labor market, but noted that by and large, those who wanted to work were finding jobs.