The hawkish faction within the Federal Reserve is amplifying its calls for more aggressive policy action. Following Fed Chair Warsh's inflation warning at the Jackson Hole symposium last week, Governor Barr stated on Tuesday that the central bank should not hesitate to raise interest rates if inflation fails to cool down sufficiently.

According to prepared remarks for a Washington event, Barr indicated that if data shows inflation is steadily moving toward the 2% target, the Fed can afford to be patient and observe for a longer period. "However, if inflation does not cool sufficiently, I believe we should act decisively to raise rates," he said. He also cautioned that inflation has remained above target for more than five consecutive years, posing a risk of price pressures becoming deeply entrenched.

This stance echoes the recent hawkish position taken by Warsh, who warned last week that US inflation has yet to show a substantial enough slowdown and that Fed officials would need to act if price pressures fail to ease in the near term. The consecutive hawkish signals from two senior Fed figures are further solidifying market expectations for a rate hike in September.

In fact, calls urging the Fed to remain vigilant on inflation have notably increased recently. At the July policy meeting, Minneapolis Fed President Neel Kashkari, Cleveland Fed President Beth Hammack, and Dallas Fed President Lorie Logan jointly voted in favor of a rate increase—a rare move. Now, with Barr further clarifying that rates should rise if inflation does not abate, markets are closely watching whether this hawkish stance gains more traction.

September CPI Becomes Key Test as Hawkish Voices Intensify

Despite most Fed officials still projecting that inflation will ultimately decline without the need for additional rate hikes, the three dissenting votes at the July meeting have already signaled rising internal concern over inflation risks.

Meanwhile, recent increases in oil prices, fresh tariff impacts, and demand growth driven by large-scale AI data center construction could all prolong price pressures, further complicating the Fed's decision-making process.

Going forward, market attention will be firmly fixed on the US August CPI report, scheduled for release on September 11. The Fed's next policy meeting is set for September 15-16, and this inflation reading will serve as a critical basis for determining whether a September rate hike is warranted.

If the CPI fails to deliver a convincing signal of cooling, the "decisive rate hike" scenario described by Barr could move closer to reality; conversely, if inflation shows clear signs of easing, market bets on a September hike may also subside.