Fed chair leaves door open to rate hike

Fed Chair Kevin Warsh said Aug. 28 that the Federal Reserve must be confident that core inflation is moving toward its 2% target at a sufficiently fast pace. “If it’s not, we have work to do,” he said at the annual economic policy symposium in Jackson Hole, Wyoming. Warsh added that short-term interest rates are the Fed’s main tool for fulfilling its dual mandate of price stability and employment. His remarks signaled that the Fed could raise rates if U.S. inflation does not fall toward its 2% target quickly enough.

Warsh, a close ally of U.S. President Donald Trump who took over as Fed chair in May, had previously declined to take a clear position on rate hikes. But in his first Jackson Hole speech as chair, he broke his silence and signaled that higher rates could be on the table. That has raised the possibility of a clash with Trump, who has repeatedly urged the Fed to cut rates to support the economy. Attention is now turning to the Federal Open Market Committee meeting on Sept. 15-16, held less than two months before the Nov. 3 U.S. midterm elections, and what the Fed will decide.

Meanwhile, Bank of Korea Gov. Shin Hyun-song attended the Jackson Hole symposium for the first time since taking office. Shin recently said the Korean won had built up some resilience to external shocks. He also said the impact of planned large-scale investment in the United States on the exchange rate would be “well within a manageable range.” The won-dollar exchange rate closed at 1,372.5 won on Aug. 28, its lowest level in 13 months.


Do-Young Kwak now@donga.com