Washington, Sep 17 — The US Federal Reserve has raised its benchmark interest rate by a quarter of a percentage point to 3.75–4 per cent, with Chair Kevin Warsh saying inflation remains too high and a strengthening economy allows policymakers to focus on restoring price stability.
The Federal Open Market Committee voted unanimously for the increase. Warsh said the decision reflected stronger economic activity, insufficient progress against inflation and changes in the geopolitical situation since the previous meeting.
"The plain fact is that inflation is too high and has been for too long," he told a news conference after the meeting.
Warsh declined to signal whether the increase would be followed by further rises. He said future decisions would rest on an assessment of economic conditions.
"I'm not going to prejudge any future decisions we make."
The decision came as domestic spending remained resilient, productivity grew strongly and business investment expanded. Warsh said hiring, private sector earnings and capital investment had improved in recent months.
Unemployment remained around 4.1 per cent, while job openings and weekly working hours had increased. He described the labour market as broadly consistent with full employment.
Inflation, however, had remained above the Fed's target for more than five years.
Based on recent consumer and producer price data, Warsh estimated that annual inflation measured by the personal consumption expenditures index was around 3.6 per cent in August. Core PCE inflation was running at about 3.2 per cent.
Too many price categories were still recording increases above 3 per cent over both six-month and 12-month periods, he said. Prices of several key commodities had also risen.
At the July meeting, most committee members had favoured waiting for more information. Warsh said subsequent evidence showed a stronger economy without sufficient improvement in underlying inflation.
"We must be confident that underlying inflation is moving to our objective clearly and at sufficient speed," he said.
"Today the FOMC decided that this standard has not been satisfied."
Asked how higher rates could address supply-related price pressures, Warsh acknowledged that the central bank could not control individual prices, including oil or groceries. Its task was to prevent those increases from spreading more widely through the economy.
He also rejected the suggestion that bringing inflation down necessarily required damage to employment.
"I don't believe that we need to do harm to the labour markets to achieve our objective."
The committee's median projections put economic growth at 2.3 per cent this year and 2.4 per cent next year. Total PCE inflation was projected at 3.7 per cent this year, falling to 2.3 per cent next year.
The median projection placed the federal funds rate at 4.1 per cent at the end of this year and next year. Warsh stressed that he had not submitted a forecast of his own.
He also pointed to the international reach of US monetary policy. Recent meetings with central bank counterparts in Jackson Hole, Asheville and Basel showed that most advanced economies faced price pressures, he said.
"One is when the Federal Reserve makes a policy choice, it matters not just to the US economy, but it spills over to the rest of the world."
The Federal Reserve's mandate from Congress centres on maximum employment and stable prices. Its longer-run inflation objective is 2 per cent, measured by the annual change in the PCE price index.