Will the Fed raise interest rates this month? A Kevin Warsh speech could offer clues

When Federal Reserve Chairman Kevin Warsh strides onstage in Bangkok on Friday morning, it will be after 11 p.m. on Thursday in New York. But investors, economists and politicians in the United States will be awake and hanging on his every word. Any speech by a Fed chair is closely scrutinized. This week’s talk has an extra dose of urgency, though, after two government reports showed inflation heating up for consumers and businesses — spurring speculation about how soon the Fed will raise interest rates to handle soaring prices. Warsh will be speaking at the annual meeting of the International Monetary Fund and the World Bank, where he will be interviewed by IMF Managing Director Kristalina Georgieva. The Fed chairman has repeatedly said he will not use public speaking engagements to intentionally steer the expectations of investors and markets, but his comments could nevertheless signal whether the central bank will hike rates before, or after, the Nov. 3 midterm elections. It will also be the last speech from a Fed official before policymakers enter a “blackout” period on Saturday that lasts through their next interest rate meeting, which is scheduled for Oct. 27 and 28. “Broad based” inflation “strengthens the case for an October hike,” Bank of America analysts wrote on Wednesday. “The data continue to underscore two key sources of inflation pressure: AI and Iran.” Those two factors aren’t likely to be going anywhere soon, either. The price of politics Already hammered by soaring interest rates, rising energy prices and stagnant wage growth, American consumers could get an extra dose of financial strain if the Fed raises rates again this month. Voters are already dissatisfied with President Donald Trump’s handling of the economy, polls show, so another rate hike could add to Republicans’ headaches as they face potentially losing their congressional majorities in the midterms. In recent weeks, Trump has tried to pull multiple policy levers to lower gas and diesel prices, which have pushed inflation higher in recent months. But none of them have yet slowed prices meaningfully. “Starting on day one, we will end inflation and make America affordable again,” Trump said on the campaign trail in 2024. Inflation as measured by the consumer price index declined to as low as 2.3% four months into Trump’s term. But that same month, Trump unleashed a wave of tariffs across the globe, dramatically changing the economic story. By September, inflation breached the 3% threshold again. In February, Trump launched the war against Iran, causing one of the worst energy supply shocks in history. Inflation jumped as high as 4.1% in May, and looks to be headed back in that direction again. Another Fed rate hike would also further undermine Trump’s yearslong pressure campaign to push the central bank to cut rates. Since Warsh took his post in May, the central bank has either held rates steady or increased them. FOR SUBSCRIBERSRepublicans in key races break with Trump over tariffs FOR SUBSCRIBERSHow safe are roller coasters? What riders should know FOR SUBSCRIBERSThe economic crunch ahead of the election crunch Trump hasn’t attacked Warsh after years of hammering former Chair Jerome Powell. But the president has started saying that the other members of the Fed’s board are “very hostile.” “I’m relying on Kevin,” Trump told reporters in September, “but he’s got, you know, a very tough board. He’s got a board that was put there by a lot of other people, and the interest rates are too high.” FOR SUBSCRIBERSRepublicans in key races break with Trump over tariffs FOR SUBSCRIBERSHow safe are roller coasters? What riders should know FOR SUBSCRIBERSThe economic crunch ahead of the election crunch “They’re very political,” Trump said. Four of the Fed’s seven board members were appointed by Trump. The White House did not immediately comment when asked what kind of expectations Trump has for Warsh’s appearance in Bangkok. Diesel and the damage done Economists and investors are paying close attention to so-called core inflation, which excludes volatile food and energy prices. Both reports this week showed that even this adjusted measure of price growth is running hotter than hoped for. “Core CPI was the more significant surprise,” wrote analysts at Bank of America. The core readings showed that skyrocketing fuel prices, particularly diesel, are trickling down. Farmers, truckers and others who keep commerce humming in the United States have to raise their prices in order to digest higher diesel costs. That, in turn, leads to price increases for consumer goods. “The cost of diesel gets into just about everything,” KPMG chief economist Diane Swonk told NBC News in an August interview. “Everything from … running a farm … cost of food, but also everything across the economy that’s shipped gets that extra fee tacked onto it.” At the time, she described the surge in diesel fuel prices as likely “an inflationary problem for the next several months.” Her warning came to fruition in September, according to the consumer price index and producer price index reports this week. With diesel prices remaining solidly above $6 per gallon so far in October, and with no sign that the Iran war is near an end or that attacks on energy assets in the Ukraine-Russia war will be paused, it could keep fueling overall inflation for months. Big Tech is also fueling inflation. Trillion-dollar companies are spending, and borrowing, big sums for servers, memory and other components that will be used in data centers. That’s caused price spikes across the economy. Companies including Apple and Nintendo have raised prices as a result. “We have never seen a component price increase this much, this quickly,” Apple told NBC News in June. Companies are also tapping the public debt markets in an unprecedented way. Data center companies and associated utility firms, chipmakers and cloud providers are expected to raise between $300 billion and $570 billion from the debt market this year, according to Vanguard. Those firms are also offering highly attractive interest rates, sometimes better than U.S. Treasury bonds. A consequence of that, Warsh noted recently, is that there’s a “competition for capital” driving up interest rates on government debt, too. “This is a complicated set of things that are affecting the most important asset anywhere in the world, the 10-year Treasury,” Warsh said. “It’s the risk-free asset upon which every price of virtually every asset in the world is related to.” Without referencing the Iran war, he also said yields were being driven by “geopolitics” and the strength of the economy.