Why Some Economists Want Fed Chair Warsh to Hike Rates Today

Some economists want Federal Reserve Chair Kevin Warsh to raise interest rates at today’s meeting. They argue the central bank’s 2025 cuts left policy too loose, even as inflation sits above target.

Joe Lavorgna makes that case directly. He serves as chief economist for the Americas at SMBC Nikko Securities America. Lavorgna says the Fed should reverse part of last year’s easing now that the labor market has stabilized.

The Case for a Hike

Lavorgna points to core Personal Consumption Expenditures (PCE) inflation, the Fed’s preferred gauge. It has held more than a percentage point above the 2% target for years.

He argues policy isn’t tight anywhere except housing, and that sector makes up only about 3% of the economy, in his view.

Lavorgna also expects the neutral rate, or r-star, to climb. Artificial intelligence-driven capital spending is lifting demand for credit, he says, which makes current rates look less restrictive than policymakers assume. Dallas Fed President Lorie Logan has echoed that hawkish tilt.

“Modestly higher interest rates would better balance the outlook.”

Logan made the remark last week. She holds a voting seat on the Federal Open Market Committee (FOMC).

A Hike, But Is It a Surprise?

CNBC’s Steve Liesman frames the debate as two separate questions. First, should the Fed hike? Second, should it do so without warning? Traders on the CME FedWatch tool priced hike odds near 38% heading into the decision. That’s well below a coin flip, and it matches what most economists still expect: a hold.

Warsh took over the Fed in May and has since pulled back on forward guidance. That leaves markets with fewer hints before today’s 2 p.m. ET announcement and his 2:30 p.m. press conference.

Warsh himself predicted this meeting could bring open dissent among policymakers. A hike would make that prediction look prescient, and it would mark his most consequential test yet.