Traders have ramped up bets that a US interest rate hike could come as soon as next month after a speech by Federal Reserve Chairman Kevin Warsh in Jackson Hole, Wyoming.
Warsh gave what financial markets viewed as his clearest signal yet that benchmark interest rates may need to rise to manage stubbornly high inflation.
Addressing central bankers at an annual meeting, Warsh said the Federal Reserve would "have work to do" if policymakers were not confident inflation was heading back to its 2 per cent target, adding: "That's our job."
Collision course with Donald Trump
Any decision to increase interest rates would put Warsh on a direct collision course with President Donald Trump. Trump previously castigated Warsh's predecessor, Jerome Powell, for failing to cut borrowing costs.
Role of the Federal Reserve and interest rates
The Federal Reserve serves as the central banking system of the United States, responsible for setting monetary policy and maintaining national economic stability. When consumer prices rise faster than desired, central banks raise benchmark interest rates to increase borrowing costs for consumer loans, mortgages, and corporate credit, which helps cool economic demand.
A 2 per cent annual inflation target is the benchmark standard used by the Federal Reserve and other major international central banks to balance economic growth with price stability.
The Jackson Hole Economic Symposium
The annual address in Jackson Hole, Wyoming, organized by the Federal Reserve Bank of Kansas City, is one of the premier global gatherings for central bank governors, finance ministers, and monetary policy experts. Keynote speeches at the event are heavily scrutinized by financial markets for indications of impending policy shifts.
Federal Reserve chairs maintain institutional independence from the White House when determining interest rate policy. However, Donald Trump repeatedly broke with political norms during Jerome Powell's leadership by publicly demanding lower borrowing costs to stimulate economic expansion.
