Fed Governor Michael Barr said inflation remains too high and argued that if inflation does not moderate soon, it will be time for an interest rate hike.

Barr said he would favor holding rates steady if officials are confident that inflation is moderating. He also said the labor market is stable, with low unemployment, and that the economy is growing solidly, supported by artificial intelligence investment.

Persistent inflation above the Fed’s target creates risks, Barr said.

Barr’s comments were more hawkish, with a rate hike remaining a possibility if inflation does not ease soon. While he said he would support keeping rates unchanged if inflation is moving lower, his warning that inflation staying above target creates risks puts the burden on upcoming data to show improvement.

That matters because the Fed has been trying to balance progress on inflation against signs of resilience in growth and hiring. When policymakers describe the labor market as stable and the economy as still expanding, they have more room to hold rates steady, but not necessarily enough to justify easing if price pressures do not cool further.

At the same time, solid economic growth, AI investment and a stable labor market with low unemployment suggest little urgency to cut rates. The message is that steady rates remain an option, but stubborn inflation could make the next move a hike.

US stocks were looking increasingly fragile at the open, with the S&P index down 55 points, or 0.72%. Dow futures were down 318.70 points, and Nasdaq futures were down 420 points.

The 2-year yield was trading up 2.5 basis points at 4.375%, while the 10-year yield was at 4.784%, up 2.6 basis points. Market expectations for a September rate hike were at 66%, up from the low 30s last week before Warsh’s Jackson Hole speech.