Fed Chair Kevin Warsh under presssure to hike rates as inflation fails to cool: ‘Time to put up or shut up'

• Core CPI rose 0.3% month-over-month in August (versus 0.2% expected) and 2.4% year-over-year, while overall inflation measured 3.4%, suggesting price pressures are moving in the wrong direction
• The Fed has maintained its policy rate at 3.50%-3.75% all year, with a 9-3 vote in July signaling growing internal support for higher rates among central bankers
• Traders now price in an 85% probability of a September rate hike (up from 70% before the report), with expectations for a second hike in December as economists warn Warsh must 'put up or shut up' after his Jackson Hole speech

Summary

Federal Reserve Chair Kevin Warsh faces mounting pressure to raise interest rates following consecutive hotter-than-expected inflation reports ahead of the Fed's September 15-16 meeting. Core CPI (excluding food and energy) rose 0.3% month-over-month in August, exceeding the 0.2% economist forecast. Year-over-year, core CPI increased 2.4%, while overall consumer inflation reached 3.4%.

Key Data Points:

• Core CPI: 0.3% monthly increase vs. 0.2% expected
• Overall inflation: 3.4% annually
• Fed's current policy rate: 3.50%-3.75% range (unchanged all year)
• Inflation has remained above the Fed's 2% target for 5.5 years
• Oil prices exceeded $100/barrel amid Middle East tensions

Market Reaction:

Traders now price an 85% probability of a quarter-point rate hike at next week's meeting, up from 70% before the report. Markets also anticipate a potential second hike in December.

Analyst Perspectives:

Principal Asset Management's Seema Shah stated the data "all but locks in a Fed rate hike next week," with likely additional increases needed. Inflation Insights founder Omair Sharif noted it's "time to put up or shut up" for Warsh following his Jackson Hole remarks about acting if inflation doesn't move toward 2% with sufficient speed.

However, some economists remain divided. Oxford Economics suggests the Fed's preferred PCE index may show a more "benign" 0.2% increase, keeping the decision on a "knife's edge." At least two Wall Street firms reversed prior forecasts to now predict a rate hike.

The July Fed meeting saw a 9-3 vote maintaining rates, signaling growing internal support for tightening.