The Zhitong Finance App learned that Federal Reserve Governor Barr said on Tuesday that if US inflation fails to ease further, he is ready to support interest rate hikes. As Federal Reserve Chairman Walsh previously sent hawkish signals, and US Treasury yields continued to rise, market expectations that the Federal Reserve would raise interest rates again as soon as the September meeting heated up.
At a banking forum in Washington, he expressed concern that broader price pressure may gradually develop. US inflation has been above the Federal Reserve's 2% target for nearly five and a half years, which makes policymakers still need to be wary of the price outlook.
In a prepared speech, Barr said, “If future data trends make me more convinced that inflation is cooling down the path of falling back to 2%, then I think we can spend more time evaluating the current policy position.” However, at the same time, he stressed: “If inflation doesn't seem to have been mitigated to a sufficient extent, then I think we should act decisively to raise interest rates.”
Barr's latest statement means that in a situation where inflation is slow to return to the Federal Reserve's target, he does not rule out tightening monetary policy again.
As a member of the Federal Reserve, Barr is a permanent voting member of the Federal Open Market Committee (FOMC) responsible for formulating interest rate policies, so his policy position is an important reference for the market to determine future interest rate paths.
Barr previously supported the Federal Reserve's July meeting's decision to keep interest rates unchanged. At the time, the Federal Reserve continued to maintain the federal funds rate target range of 3.50%-3.75%.
However, after entering September, hawkish signals from within the Federal Reserve are increasing. Barr said that if future economic data can prove that inflation is falling at a convincing rate to the 2% target, the Federal Reserve can continue to observe for some time; however, if inflation is not sufficiently cooled, interest rates should be raised decisively. This means that future inflation data may become an important basis for deciding whether the Federal Reserve will restart interest rate hikes.
Barr still gave a positive assessment of the overall performance of the US economy. He pointed out that up to now, US consumer spending has generally remained resilient. However, compared to economic growth, he is more concerned about continued high price pressure. “Inflation is still too high, and this has been going on for more than five years,” Barr said.
According to the latest data, the overall price level in the US has risen 3.7% in the past year; core prices excluding food and energy have risen 3.3% year over year. Both indicators are significantly higher than the Federal Reserve's long-term inflation target of 2%.
The Federal Reserve will obtain more key price data before the next policy meeting. The US Consumer Price Index (CPI) and Producer Price Index (PPI) will both be released next week. These data will provide an important basis for policymakers to determine whether inflation is cooling down again.
If the data continues to show that price pressure is stubborn, the “decisive increase in interest rates” proposed by Barr may receive more policy support; conversely, if inflation abates significantly, the Federal Reserve may continue to maintain the current interest rate level and observe economic performance.
At the time of Barr's speech, the market had clearly raised its bets on the Fed's interest rate hike in September.
Walsh's speech last week was widely interpreted by investors as favoring further tightening monetary policy, and made the market begin to seriously consider the possibility that the Federal Reserve will raise interest rates at the next policy meeting in two weeks as soon as possible.
According to the CME FedWatch tool, as of press release, the market expects the probability that the Fed will raise interest rates this month to be about 66%. This is a clear change from the market's previous judgment on the future of the Federal Reserve's policy. As many policymakers paid more attention to continued higher-than-target inflation, the uncertainty of the September meeting increased markedly.
Barr's statement has further strengthened this logic. If the upcoming data does not prove that inflation is convincingly falling back to the 2% target, voices within the Federal Reserve may increase in support of further policy tightening.
At the same time, the external environment has further increased the complexity of the Federal Reserve's control of inflation. US Treasury yields rose sharply again on Tuesday due to renewed market concerns that the situation in the Middle East might deteriorate further, and the benchmark 10-year US Treasury yield rose to a level not seen since mid-January 2025.
The tense situation in the Middle East could affect the outlook for US inflation through energy prices. If energy supply is impacted and oil prices continue to rise, the Federal Reserve will face a more complicated policy environment. On the one hand, the US economy and consumer spending are still showing some resilience; on the other hand, inflation continues to be significantly above the 2% target, while external factors such as energy prices may further increase price pressure. Against this backdrop, market expectations for the Federal Reserve to raise interest rates again are heating up rapidly.