Fed Governor Barr Signals More Rate Hikes Are Coming as Inflation Lingers
Federal Reserve Governor Michael Barr said Wednesday that the central bank will likely need to raise interest rates further this year, according to a Reuters report carried by Yahoo Finance.
Barr delivered the comments in prepared remarks for a Chicago Fed housing affordability conference. He said risks to hitting the Fed's inflation target have grown while risks to the labor market have eased.
The Fed raised its benchmark policy rate to a range of 3.75% to 4.00% in a unanimous vote last week. Sixteen of the central bank's 18 policymakers signaled they expect at least one more increase before the end of the year.
Barr's remarks suggest he believes at least two additional hikes will be needed, though he gave no timeline.
Inflation Outlook Drives Barr's Position
Barr said U.S. economic growth remains strong and the labor market is solid. Inflation, however, is still running above the Fed's 2% target and is not clearly headed lower.
He said further policy adjustments are likely needed to bring inflation down to target in a timely fashion.
Barr described last week's quarter-percentage-point increase as a correction the Fed needed to make, saying the central bank had been out of position given changes in the economy.
He said the goal is durable growth toward maximum employment, and that price stability is necessary to reaching it.
A Different Approach From Chair Warsh
Barr's willingness to lay out where he thinks rates are headed stands apart from Fed Chairman Kevin Warsh's approach. Warsh has declined to offer forward guidance on the likely rate path, Reuters reported.
Readers can find more on how Warsh has signaled his own thinking through word choice rather than direct commitments in networth.com's coverage of his recent public remarks.
The current 3.75%-4.00% range also sits far above the near-zero rates former President Donald Trump had pushed the Fed to adopt, a gap covered in networth.com's earlier report on that pressure campaign.
Mortgage Rates Add to Housing Strain
Most of Barr's speech focused on housing affordability rather than rate policy. He said a shortage of homes for sale, combined with high mortgage rates, has made the problem worse.
The average rate on a 30-year fixed mortgage climbed to 7.12% last week, the highest level in more than two years, the Mortgage Bankers Association reported Wednesday.
For buyers watching monthly payments, that rate has stayed elevated even as the Fed has begun adjusting short-term borrowing costs. Barr did not say when he expects the additional rate increases he described to arrive.