George says borrowers should prepare for higher Fed rates under Warsh
The former Kansas City Fed chief told Fortune inflation may force the central bank to consider hikes rather than cuts.
By Sofia Marchetti · World Affairs Correspondent
3 min read
Former Kansas City Fed President Esther George told Fortune that Americans planning major financial decisions should prepare for the possibility of higher interest rates under new Federal Reserve Chair Kevin Warsh. Her warning points to a tougher borrowing environment as the Fed weighs persistent inflation against political pressure for rate cuts.
George, who worked with Warsh during his earlier tenure at the Fed, said she would not support cutting rates now. “Inflation is a problem right now, and it’s been a problem for a while in the United States,” she told Fortune.
Warsh was confirmed by the Senate in May on a 54-45 vote and has taken over from Jerome Powell at a delicate moment for monetary policy, Fortune reported. His first Federal Open Market Committee meeting ended June 17 with a unanimous decision to keep the federal funds rate at 3.5% to 3.75%.
Fortune reported that the May consumer price index showed annual inflation at 4.2%, with prices remaining above the Fed’s 2% target for more than five years. In the Fed’s latest dot-plot projections, nine of 18 FOMC members expected a rate increase before the end of the year.
Bank of America now expects three quarter-point rate increases this year, Fortune reported, which would lift the benchmark rate to a range of 4.25% to 4.5%.
George told Fortune that policymakers face a choice between holding rates steady to see whether inflation cools and raising rates if it does not. She said there is “probably a good chance” the Fed will have to discuss rate increases seriously, rather than cuts.
She also questioned whether three rate cuts late in 2025 had been justified, according to Fortune. George said the economy’s continued strength raises the issue of whether the Fed should reverse those cuts and return policy to a higher rate setting.
George said the Fed has limited tools to deal with pressures hitting consumers, including tariffs, higher energy prices tied to the conflict in Iran and immigration policy’s effects on the labor supply. She told Fortune the central bank can use interest rates to fight inflation, but cannot resolve affordability problems, offset tariffs or change immigration policy.
Warsh’s approach has drawn scrutiny because President Donald Trump has pressed the central bank to cut rates, Fortune reported. George said she expects Warsh to defend the Fed’s independence, saying he is not at the central bank to carry out the president’s agenda.
George also praised Warsh as experienced and qualified to lead the Fed. Warsh served on the Fed Board of Governors from 2006 to 2011 before moving to the private sector, and Fortune reported that he left the Fed after objecting to its bond-buying policies.
Other former Fed officials have been less confident about Warsh’s plans. Former Fed economist Claudia Sahm has warned, according to Fortune, that Warsh’s interest in changing Fed communications, including his skepticism about forward guidance and the dot plot, could weaken transparency built over the past two decades.
George led the Kansas City Fed from 2011 through January 2023 after joining the bank in 1982, Fortune reported. She became known on the FOMC for favoring tighter monetary policy and dissented for higher rates more often than any other Fed official of her era.
This story draws on original reporting from Fortune.