Fmr. IMF Chief Economist Rajan: Fed might have to act because it's been too long

Summary

Raghuram Rajan discusses Fed Chair Kevin Warsh's Jackson Hole speech and the Fed's inflation problem. He argues the Fed has waited too long and may need to raise rates because inflation remains elevated, though September could still be a pause. He also warns that oil supply tightness could add a new inflation shock and that the Fed's balance sheet normalization could be disruptive and should proceed slowly.

• Rajan assesses Warsh's speech as reaffirming Fed seriousness on inflation and willingness to use rate hikes.
• Rajan believes the Fed is behind and may have to act because inflation has been too high for too long.
• September is called a serious decision but could still be a pause depending on disinflation.
• Oil supply tightness is flagged as a possible new inflation impulse.
• Rajan argues persistent inflation becomes more structural over time.
• He warns that reducing the Fed's large balance sheet matters but could be disruptive to markets.