FED IS LASER-FOCUSED ON INFLATION DROP, WARSH SAYS

The decision was preceded by an unusual amount of uncertainty about whether the central bank might conduct a rate hike. The implied odds of a rate increase were nearly 34% ahead of the decision, which indicated unusual doubts on the part of markets.

When questioned about the dissents at a post-meeting press conference, Warsh said he “asked for a good family fight and I got one.”

“Most of our discussion [was] on the big questions that matter to the conduct of monetary policy,” Warsh said. “We didn’t sort of hide from them. We weren’t scared of them. There was a lot more interaction between and among my colleagues. It was a real family fight.”

He said there was a large majority in support of the decision to hold rates, but said there was “nothing inertial” about the discussion and that it included “robust discussion” about what can be done to get inflation back to healthy levels.

“Could people come to different conclusions? Absolutely,” Warsh added later. “But my own judgment is: this is a period of watchful thinking, not watchful waiting, and I think the score on that vote was unanimous.”

It is the second meeting Warsh has overseen, after the departure of former Fed Chairman Jerome Powell, whom President Donald Trump repeatedly criticized for failing to lower interest rates.

Trump has given Warsh more leeway with the rate calculus and has cast more of the blame on the overall monetary policy committee. Trump said this week that Warsh is “fantastic” and “wants to do the right thing,” but is dealing with a “political” Fed board.

A major factor in the Fed’s decision to hold rates steady is that the labor market remains healthy and not in need of easier monetary policy. The unemployment rate is low by historical standards, and job growth has been strong heading into the summer. Job openings have risen.

That has investors betting on at least one interest rate increase from the central bank this year.

Inflation is still too high. The Fed’s goal is 2% long-run inflation — a target that has not been met since February 2021.

The consumer price index, the most closely watched inflation gauge, was running at 3.5% for the 12 months ending in June. That is a decline from a recent peak of 4.2% in May, but it is still far too high.

Much of the recent bout of inflation has been driven by the conflict with Iran, which has caused gasoline prices to rise. The recent renewed hostilities have increased uncertainty about energy prices and what the Fed will do on the monetary policy front.

Core inflation, which strips out volatile food and energy inputs, is lower, at 2.6%, but still above the Fed’s target.

Warsh has indicated repeatedly that he is focused on bringing inflation to heel, and some have even interpreted his tone as “hawkish.” In Fed lingo, “hawks” are central bankers who prefer tighter monetary policy, while “doves” are those who advocate looser money.

During recent hearings on Capitol Hill, Warsh emphasized the importance of getting inflation under control.

He said that there is “no willingness to tolerate higher prices.”

“There was a commitment that was unambiguous and unanimous that we’re going to deliver,” the chairman said. “And we’re not finding acceptable the higher inflation that has endured in this country for more than five years.”

Outside of interest rate policy, Warsh has vowed changes at the central bank. To that end, Warsh announced the creation of five task forces.

ACADEMICS AND CEOS DOMINATE FED ADVISORY BOARDS

The first task force will focus on Fed communications, the second on the Fed’s balance sheet, the third on the use and reliance on existing data sources, a fourth on productivity and jobs, and the final task force will examine the Fed’s inflation frameworks.

Outside members of the task forces range from academics to CEOs, and Warsh said that they will be supported by subject-matter specialists on the Fed’s staff.