Warsh faces rate hike quandary in this week’s meeting

The Washington Examiner cites Ryan Young regarding federal rate hikes.

Investors assessed about a 38% chance the Fed would raise interest rates. Just a week ago, the odds of a rate hike at Wednesday’s meeting were only 16%.

Ryan Young, senior economist at the Competitive Enterprise Institute, said that two key factors might be behind the shift. The first is the continued uncertainty with Iran and the ever-shifting question of when that war will end, along with when oil prices will fall.

Also, over the past week or so, the Trump administration has announced new tariffs, including three executive orders imposing 50% tariffs on various Canadian products using Section 338 of the Tariff Act, as well as new Section 301 tariffs on 60 countries.

Also, Young said there is another issue at play: the rising cost of borrowing attributable to the federal government’s mounting debt.

“There’s a third factor underneath the surface that I don’t think is getting enough attention, and that is long-term debt interest rates — those have been creeping up because of people losing faith in the government’s long-term finances,” Young told the Washington Examiner.

Warsh might see the importance of working to return inflation to the Fed’s 2% goal as helping restore confidence in the government.

“The more they do to fight inflation and solidify the government’s finances, the more that’ll do to help tame rising long-term debt interest rates a little bit,” Young said.

While there has been some good news on inflation in the form of the June consumer price index report, underlying price growth remains too high.

Read the full article at the Washington Examiner.