Raghuram Rajan said the Fed should already have raised interest rates and that he would take a more hawkish approach as US inflation remains elevated.
He pointed to strong data-centre investment, persistent fiscal deficits and continued consumer spending as signs that US financial conditions are not sufficiently restrictive.
Rajan backed Fed Chair Kevin Warsh's anti-inflation instincts, saying investors will look to his Jackson Hole speech for a clear plan on bringing inflation down.
Former Reserve Bank of India Governor Raghuram Rajan has called on the US Federal Reserve to raise interest rates to curb accelerating inflation, Bloomberg reported. Rajan made the comments during a Bloomberg Television interview with Haslinda Amin at the Jackson Hole economic symposium.
Rajan currently heads a task force, one of five created by Fed Chair Kevin Warsh, to examine the US central bank.
1 August 2026
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"The Fed should be raising rates or should have raised rates already," Rajan said. "I would be more hawkish than where the Fed is right now."
Unrestrictive Financial Conditions
Rajan said financial conditions are not restrictive. "I do think that financial conditions are not restrictive at this point." Rajan told Bloomberg.
He attributed US economic growth to "very strong" investment in data centres and a persistent fiscal deficit. American consumers are also running down savings and continuing to spend.
"When you have all these things together, it would suggest an economy which is not being held back," headded.
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Evaluating Warsh's Strategy
Markets expect the Fed will raise rates in December as inflation remains elevated. A sharp rise in bond yields indicates that investors are also pricing in some chance of a September move.
Warsh's communications strategy has been shaky since he took the helm. During the July policy gathering, Warsh refrained from offering forward guidance. This led investors to doubt his commitment to fighting inflation, prompting long-term bond yields to hit their highest level in 20 years.
Rajan sees the Fed chief differently. "Warsh has the right instincts," Rajan told Bloomberg, adding that Warsh has tried to make clear that "he is very much against inflation" and wants to bring it down.
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Investors will follow the Fed chief's speech on Friday to see "that he has a plan to do it; that he knows what he has to do, and he can communicate that very clearly".
