Former Federal Reserve Bank of Kansas City President Esther George said Americans making long-term financial decisions should prepare for higher interest rates rather than expect near-term relief in borrowing costs, as persistent inflation continues to pressure the Federal Reserve’s policy outlook.

In an interview published Monday, George said, "If I were someone planning with that kind of horizon, I’d plan for higher rates coming ahead," Fortune reported, on Monday.

George is widely regarded as one of the Fed’s most hawkish former policymakers, meaning she has historically favored higher interest rates to keep inflation under control.

Kevin Warsh, who succeeded former Fed Chair Jerome Powell in May, kept the benchmark federal funds rate unchanged at 3.5% to 3.75% during his first Federal Open Market Committee meeting on June 17. The Federal Open Market Committee, or FOMC, is the Fed panel responsible for deciding whether to raise, cut or hold interest rates.

No Cut In Sight

George said she would not support a rate cut. A rate cut means the Fed lowers interest rates to make borrowing cheaper, which can help boost spending, housing and business activity.

"Inflation is a problem right now, and it’s been a problem for a while in the United States," she told Fortune. "There’s probably a good chance that you’ll have to talk seriously about raising rates, not cutting."

Her comments come as inflation remains elevated. U.S. consumer prices rose 4.2% year over year in May, more than double the Fed’s 2% target. Nine of 18 Fed officials also projected at least one rate hike before year-end, while Bank of America expects three quarter-point hikes in 2026, which could push rates to 4.25% to 4.5%.

George also questioned whether the Fed’s three rate cuts in late 2025 were justified, suggesting policymakers may eventually need to reverse those moves if economic growth remains resilient.

She argued the economy has remained strong enough to withstand tighter monetary policy, raising the question of whether financial conditions became too loose after last year’s cuts.

George also argued the Fed cannot solve every affordability issue facing households. She said tariffs, rising energy prices tied to the Iran conflict and labor supply pressures linked to immigration policy are all adding strain, but those problems fall outside the Fed’s control.

"The Fed can only do the job it was given," George said. "It cannot fix the affordability crisis."

Warsh Debate Intensifies

Warsh’s policy direction remains a major debate on Wall Street. ARK Invest CEO Cathie Wood recently argued inflation could fall toward 0% to 1% over the next few years due to AI-driven productivity gains, suggesting Warsh may avoid tighter policy if price pressures cool.

At the same time, former Fed economist Claudia Sahm has warned that Warsh’s reduced communication could make policy harder for markets to interpret. Warsh skipped the Fed’s "dot plot" last week, a closely watched chart showing where officials expect interest rates to move.

Warsh’s tougher stance has also raised concerns in broader markets. Earlier this month, Wall Street’s demand for downside protection fell to its lowest level in more than a year even as Warsh signaled a more hawkish and less communicative Fed, raising concerns investors may be underpricing volatility risks.

Despite uncertainty, George said she expects Warsh to remain independent despite pressure from President Donald Trump, who has repeatedly favored lower rates to support housing and economic growth.

Political pressure remains a key subplot. Trump expressed frustration after Warsh kept rates unchanged but stopped short of openly criticizing the new Fed chair, saying, "We have a very good guy over there."

"He’s not there to do the president’s work," George said.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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