Raghuram Rajan urges Fed to raise rates to contain inflation

Former RBI governor Raghuram Rajan urged the Federal Reserve to increase interest rates to curb rising inflation, observing that US financial conditions are still not tight enough.
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ELIZABETH FRANTZ

In a recent discussion, Governor Sanjay Malhotra indicated that the RBI anticipates receiving no less than $80 billion in foreign‑currency inflows stemming from its latest initiatives.   

Key Takeaways

• Former RBI Governor Raghuram Rajan urged the US Federal Reserve to raise interest rates further to contain inflation.
• Speaking at Jackson Hole, Rajan said US financial conditions remain too loose and favoured a stricter stance than the Fed’s current position.
• RBI Governor Sanjay Malhotra separately said the RBI expects at least $80 billion in foreign-currency inflows from its recent initiatives.
• Markets are watching Fed Chair Kevin Warsh’s Jackson Hole address for signals on a possible September or December rate hike.

“The Fed ought to be raising rates, or should have already done so,” Rajan told Bloomberg Television’s Haslinda Amin while at Jackson Hole, Wyoming, where he participates in the yearly central‑bankers gathering. “I would take a stricter stance than the Fed’s current position.”

Markets anticipate the Fed will lift borrowing costs in December, given that inflation stays high, and a notable increase in bond yields shows investors are also factoring in the possibility of a September rate hike.

Warsh speech in focus

Fed Chair Kevin Warsh has left investors guessing about his policy direction, refraining from giving any forward guidance. Consequently, his Friday address at Jackson Hole will be scrutinised for hints about the future rate path and its impact on worldwide markets.

“I believe financial conditions are still not restrictive at this moment,” Rajan remarked, noting that US growth is driven by “strong” investment in data centres. He added that the nation also carries a “substantial” fiscal deficit that shows no sign of shrinking soon.

U.S. consumers are depleting their savings while maintaining spending levels. “When these factors combine, they point to an economy that is not being constrained.”

Rajan defends Warsh’s inflation approach

Warsh’s communication style has been somewhat uneven since he assumed leadership. Following the July policy meeting, he shared minimal insight on his economic outlook and refrained from offering forward guidance on rates. Investors read his remarks as indicating insufficient determination to bring inflation back to target, pushing long‑term bond yields to their highest level in two decades.

Rajan views the Fed chief differently. “Warsh possesses the right instincts,” he said, “and has endeavoured to make clear that he is firmly opposed to inflation and aims to reduce it.”

Market participants will watch the Fed chief’s address to see “whether he has a concrete plan to achieve that, understands the necessary steps, and can convey them clearly.”

Rajan is co‑chairing one of the five task forces set up by Warsh. His group is analysing the Fed’s balance‑sheet strategy.

Rupee resilience

Regarding India, Rajan noted that the rupee has proved more resilient than many expected. It now trades at about 95.50 per dollar, up from roughly 97 in May after the RBI launched capital‑raising measures to attract dollars.

“At this stage I do not consider the currency to be markedly misaligned,” Rajan stated. “I do not see it as a cause for alarm.”

In a recent discussion, Governor Sanjay Malhotra indicated that the RBI anticipates receiving no less than $80 billion in foreign‑currency inflows stemming from its latest initiatives.

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Published on August 28, 2026