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Barr supports a Fed rate hike if inflation stays high
Speaking at the Second Chance Lending Forum in Washington on Sept. 1, Barr said the Federal Reserve has time to review the data before its Sept. 15-16 Federal Open Market Committee meeting. His position depends on whether upcoming reports provide clear evidence that price growth is returning toward the central bank's 2% target.
If trends in the data give confidence that inflation is moderating on a path to 2 percent, Barr said policymakers can take more time to assess their stance. However, if inflation appears not to be moderating sufficiently, he said the central bank should act decisively to raise rates without delay.
Inflation fell from a peak of more than 7% in 2022 to slightly above 2% in 2024. Progress then stalled in 2025 as tariffs, the conflict in the Middle East and spending linked to the rapid expansion of artificial intelligence placed fresh pressure on prices. Barr also pointed to persistent inflation in core non-housing services, which cover services other than housing and exclude some of the categories most affected by short-lived price changes.
With inflation remaining above target for an extended period, he warned that price pressure could spread across more parts of the economy. The latest Personal Consumption Expenditures data placed annual headline inflation at 3.7%, while core PCE inflation stood at 3.3%. The PCE price index is the Fed's preferred inflation measure, making its path central to the rate debate.
Fed officials have raised pressure before September
Barr's comments add another voting member to the group of officials prepared to consider higher borrowing costs. As a member of the Federal Reserve Board, he holds a vote at every FOMC meeting. Fed Chair Kevin Warsh delivered a similar message during his Aug. 28 Jackson Hole address, saying policymakers needed to be confident that inflation was moving toward the 2% objective clearly and at sufficient speed.
Warsh described the 2% PCE inflation goal as a firm, fixed target. He also said that 54% of the 199 goods and services in the PCE basket had recorded price increases above 3% during the previous 12 months. The Federal Open Market Committee held its target rate at 3.50%-3.75% during its July 28-29 meeting. Most members supported waiting for more information, but Minneapolis Fed President Neel Kashkari, Cleveland Fed President Beth Hammack, and Dallas Fed President Lorie Logan preferred an immediate quarter-point increase.
Earlier in August, Kashkari said it was time to start moving rates up gradually as inflation remained above target and the U.S. economy continued to withstand current borrowing costs. The July policy split left the September decision dependent on inflation, employment, and developments affecting energy prices. Barr described the U.S. economy as solid, supported partly by investment in artificial intelligence. Consumer spending has remained resilient, while the labor market has stayed stable with relatively low unemployment.
Traders raise Fed rate hike bets to 72%
Polymarket traders now assign a 72% probability to at least one Federal Reserve rate increase before the end of 2026. The probability stood at 68% following Warsh's Jackson Hole speech and at 64% in early August. A separate Polymarket contract places the chance of a 25-basis-point increase at the September meeting at approximately 57%.
Prediction-market probabilities change as traders open and close positions, and they do not represent a commitment from the Fed. Market pricing has risen quickly in recent weeks. In early August, Polymarket traders assigned a 46% chance to a September quarter-point increase, while the probability of at least one hike during 2026 stood at 64%.
CME-based estimates also put the probability of a September increase at about 57% following Warsh's speech, according to an Aug. 31 report. The figure had stood at 39.9% on Aug. 21, while the two-year U.S. Treasury yield later climbed to around 4.31%. A rate increase would raise the Fed's current target range to 3.75%-4.00% if officials approve a quarter-point move.
Oil and U.S. data could shape the September decision
Energy prices have created another inflation concern as fighting between the United States and Iran threatens oil shipments near the Strait of Hormuz. Brent crude moved above $90 on Aug. 31, while West Texas Intermediate also advanced as traders assessed the risk of supply disruptions. Bitcoin held close to $78,000 during the initial market response, even as oil rose and equity futures declined.
Barr identified the Middle East conflict as one of the shocks that pushed inflation away from its previous path. Tariffs have also raised goods prices, while the AI construction boom has increased demand for equipment, electricity and other resources. Before deciding on rates, the Fed will review August CPI data, the September employment report, and any further developments in energy markets.
For crypto investors, higher rates could reduce the liquidity available to Bitcoin and other cryptocurrencies. BTSE Chief Operating Officer Jeff Mei said in an Aug. 31 report that higher rates could reduce liquidity available to digital assets. U.S. spot Bitcoin exchange-traded funds still recorded $924.5 million in net inflows during the week, although investors withdrew $201.9 million on Aug. 28.
The September FOMC meeting will be the next major event for markets. With three voting members already supporting a hike and Barr adding his voice, the decision may come down to whether inflation data cooperates. A hawkish surprise could pressure risk assets across the board, while a continuation of the current pause might give Bitcoin and the broader crypto market room to recover from the geopolitical shock.
