Raghuram Rajan Urges Federal Reserve to Raise Rates as US Economy Remains Resilient

Former Reserve Bank of India (RBI) governor Raghuram Rajan has called on the US Federal Reserve to raise interest rates to contain accelerating inflation. Speaking from Jackson Hole, Wyoming, where central bankers and officials are gathered for an annual conference, Rajan noted that US financial conditions remain insufficiently restrictive.

“The Fed should be raising rates or should have raised rates already,” Rajan said in an interview. “I would be more hawkish than where the Fed is right now.”

Markets currently expect the Fed to boost borrowing costs in December as inflation stays elevated. A sharp rise in bond yields also indicates that investors are pricing in some chance of a September move. Fed Chair Kevin Warsh has kept markets guessing about his policy stance by avoiding forward guidance, making his scheduled speech at Jackson Hole a critical focus for clues on the rate outlook and global market implications.

According to Rajan, financial conditions are not restrictive at present, driven by strong investment in data centers and a persistent fiscal deficit that shows no sign of decreasing soon. With American consumers continuing to spend and running down their savings, Rajan suggested the economy is not being held back.

While investors have scrutinized Warsh’s communications strategy since he took the helm—noting a lack of forward guidance and a subsequent climb in long-term bond yields to a two-decade high—Rajan offered a more supportive view. “Warsh has the right instincts,” Rajan said, adding that the Fed chief wants to bring inflation down and that investors will look to his speech for a clear plan and communication strategy. Rajan is currently co-leading one of five task forces established by Warsh, examining the Fed’s approach to balance sheet policy.

Shifting focus to domestic markets, Rajan commented on the performance of the Indian currency. He stated that the rupee has held up better than some feared. The currency is currently trading around 95.50 against the US dollar, recovering from nearly 97 in May after the RBI implemented capital-raising measures to bring dollars into the country.

“At this point, I don’t think the currency is that far out of whack,” Rajan said. “I don’t think it’s a panic situation.” Supporting this outlook, RBI Governor Sanjay Malhotra recently noted in an interview that the central bank expects at least $80 billion in foreign-currency inflows from its recent policy measures.

"Raghuram Rajan's perspective on global monetary policy underscores the delicate balance central banks must maintain as they navigate persistent inflation and economic resilience. For businesses and investors in emerging markets like India, monitoring the US Federal Reserve's rate decisions is critical, as shifting foreign-currency inflows and currency valuations directly impact capital availability, operational planning, and macroeconomic stability. Prudent financial management remains essential in navigating these broader global monetary cycles." — Dr. Shishir Gupta, Founder & CEO, StartupLanes