Fed's Barr Signals More Rate Hikes Needed to Tame Inflation

Federal Reserve Governor Michael Barr said the US central bank will likely need to raise interest rates further to bring inflation back to its 2% target, describing last week's quarter-percentage-point increase as a move in the right direction.

In prepared remarks for a Chicago Fed conference on housing affordability, Barr said the Fed had taken an important step to recalibrate short-term borrowing costs. "Risks to achieving our inflation target have increased, while risks to the labor market have receded," he said.

Barr noted that economic growth remains strong and the labor market is solid, but inflation is still running above the Fed's goal and is not clearly trending downward. "In my base case, further policy adjustments are likely to be needed to ensure inflation comes down to target in a timely fashion," he said.

Last week, Fed policymakers voted unanimously to lift the policy rate to the 3.75%-4.00% range. Sixteen of the eighteen officials signaled that at least one more hike would probably be required before the end of the year. Barr's comments suggest he sees at least two more increases as necessary, though he did not specify a timeline.

His explicit guidance on the rate path contrasts with Fed Chairman Kevin Warsh's refusal to offer any forward guidance. "In my view, given changes to the economy, we were out of position, and we made an adjustment in the right direction," Barr said of last week's move. "We want to support sustainable, durable growth in support of maximum employment, and price stability is crucial to that."

Barr's monetary policy remarks were brief, with most of his speech devoted to housing affordability, which has been strained by limited supply and elevated mortgage rates. The average rate on a 30-year fixed-rate mortgage rose to 7.12% last week, a more than two-year high, according to the Mortgage Bankers Association.