Economists Call for Fed Chair Warsh Rate Hike at Today's Meeting

Some economists are calling on Federal Reserve Chair Kevin Warsh to raise interest rates at today's meeting. Joe Lavorgna, chief economist for the Americas at SMBC Nikko Securities America, argues the central bank's 2025 cuts left policy too loose even as core Personal Consumption Expenditures inflation has held more than a percentage point above the Fed's 2% target for years. The debate centers on whether current monetary policy adequately addresses persistent inflation pressures despite a stabilized labor market.

Lavorgna Cites Core PCE Inflation Above Target

Lavorgna points to core Personal Consumption Expenditures inflation, the Fed's preferred gauge, which has held more than a percentage point above the 2% target for years. He argues policy isn't tight anywhere except housing, and that sector makes up only about 3% of the economy in his view. Lavorgna also expects the neutral rate, or r-star, to climb as artificial intelligence-driven capital spending lifts demand for credit, which makes current rates look less restrictive than policymakers assume.

Dallas Fed President Lorie Logan stated last week that "modestly higher interest rates would better balance the outlook." Logan holds a voting seat on the Federal Open Market Committee.

CME FedWatch Tool Priced Hike Odds Near 38%

CNBC's Steve Liesman frames the debate as two separate questions: should the Fed hike, and should it do so without warning. Traders on the CME FedWatch tool priced hike odds near 38% heading into the decision, well below a coin flip and matching what most economists still expect — a hold.

Warsh took over the Fed in May and has since pulled back on forward guidance, leaving markets with fewer hints before today's 2 p.m. ET announcement and his 2:30 p.m. press conference. Warsh himself predicted this meeting could bring open dissent among policymakers.

FAQ

Why do some economists want Fed Chair Warsh to raise rates at today's meeting?

Joe Lavorgna argues the Fed's 2025 cuts left policy too loose. Core PCE inflation has held more than a percentage point above the Fed's 2% target for years, and Lavorgna says policy isn't tight anywhere except housing, which makes up only about 3% of the economy in his view.

What do markets expect from today's Fed meeting?

Traders on the CME FedWatch tool priced hike odds near 38% heading into the decision. That's well below a coin flip and matches what most economists still expect: a hold. The Fed announcement is scheduled for 2 p.m. ET with a press conference at 2:30 p.m.