EUR/USD slipped Tuesday after Federal Reserve Governor Michael Barr said the central bank should raise rates if inflation fails to cool, pushing market odds of a September hike to 66%. The remarks extend a hawkish shift that began with Fed Chair Kevin Warsh's Jackson Hole speech last week.
The pair traded at 1.1603, down 0.12% on the day, Tuesday, as Barr said the Fed should act if price pressures persist. It softened alongside a broader repricing of Fed rate expectations that followed his remarks.
Barr keeps a September hike in play
Barr told the Second Chance Lending Forum that policymakers should move if inflation does not moderate enough before the September 15-16 FOMC meeting. According to Investing.com: "should act decisively to raise rates". He left a conditional opening, saying the Fed could take more time to assess policy if data show inflation moderating toward 2%.
The remarks pushed market-implied odds of a September rate hike to 66%, up from just above 30% before Warsh's Jackson Hole speech on August 28. Three FOMC members had already dissented in favor of a hike at the July 28-29 meeting, and the benchmark rate has held in the 3.50%-3.75% range since December 2025.
Inflation still running hot
Barr said inflation remains too high and has stayed elevated for over five years. The Fed's preferred gauge, the PCE price index, stood at 3.7% year-over-year in July 2026, while core PCE rose 3.3% annually, the highest since 2023. ActionForex reported that Barr also flagged core non-housing services inflation as elevated, warning that prolonged above-target price growth risks broader pressures taking hold.
Data-heavy week ahead
Several releases stand between markets and the rate hike decision. JOLTS job openings for July are due Tuesday, with consensus at 7.33 million versus a prior reading of 7.359 million.
August nonfarm payrolls follow on Friday, September 4, with a consensus forecast of 58,000 jobs after July's -23,000 shock. A weak print could temper the hawkish case; a resilient one would give the Fed little reason for restraint.
Sources: Reuters, Investing.com, ActionForex
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