Dive Brief:
- The Federal Reserve on Wednesday held the main interest rate at a range between 3.5% and 3.75%. The decision came after a two-day meeting as it keeps a firm focus on the central bank’s dual mandate and seeks to foster price stability amid conflict and “elevated uncertainty” in the Middle East, according to a statement.
- The decision was made with a 9-3 vote, with Neel Kashkari, president of the Federal Reserve Bank of Minneapolis; Beth M. Hammack, president of the Federal Reserve Bank of Cleveland; and Lorie K. Logan, president of the Federal Reserve Bank of Dallas dissenting in favor of a 0.25% hike to the federal funds rate, according to the central bank.
- “I asked for a good family fight, and I got one,” Federal Reserve Chairman Kevin Warsh said of the dissenting votes Wednesday in response to a question during his second press conference as chair. “My view is that’s the better way to get policy right; that’s our North Star.”
Dive Insight:
Warsh, who has served as chairman for about eight weeks and four days — not that he’s counting, he quipped Wednesday — noted discussions during the two-day meeting were “collegial and constructive.”
The July decision by the Federal Open Markets Committee represents the second made under Warsh’s leadership, who in June noted the central bank’s commitment to easing pricing pressures. Warsh on Wednesday also spoke of the Fed’s decision under his leadership to be more opaque in regards to communications of monetary policy, an approach he has touted that will allow markets to respond more freely and directly to economic data.
The FOMC’s Wednesday statement did not delve into forecasting or forward guidance, a choice that the central bank feels is “especially prudent” in the current uncertain environment, he said. With the decision, Warsh is looking to see a “direct” or “unfiltered” message from markets in response to economic data, he said in response to a question.
“We’re trying not to interfere with that market signal…so they’re reacting to events much more directly, which is a good thing,” he said.
Warsh also stressed the Fed’s commitment to achieving price stability. Despite the split vote, discussion during the two-day meeting showed broad agreement regarding the central bank’s goals and objectives, though there was clearly some “lean” with regards to how to best achieve those objectives, he said.
“The path to central bank heaven involves delivering on our remit,” Warsh said.“These days, that means delivering on price stability.”
Economic activity has continued to grow at a “solid pace” despite economic uncertainty, the FOMC said Wednesday, citing strength in productivity growth and capital investment, while the unemployment rate has remained relatively unchanged.
However, inflation remains elevated beyond the central bank’s 2% goal, in part due to “supply shocks that have driven price increases in certain sectors, including energy,” the FOMC said in its statement.
Fueled in part by the war in Iran, energy prices have remained volatile, with the price of Brent crude oil surging over 6% to above $89 per barrel on Wednesday — breaking a three-day slump as supply concerns resurfaced regarding the conflict, according to data from Trading Economics.
Warsh in June pledged that the central bank would continue its efforts to ease inflation following a less-than-expected rise in consumer prices last month, CFO Dive previously reported. Consumer prices rose at an annual rate of 3.5% in June, compared to a 4.2% pace in May, according to the Bureau of Labor Statistics.
The Fed Chair on Wednesday was quizzed on the July decision to hold the main rate steady amid continued pricing pressures, which had raised expectations for a hike. In June comments prior to the Fed’s meeting last month, both Logan and Hammack warned of the possibility of a hike in the main rate, according to a report by Axios.
In a response to questions, Warsh said the Fed’s July decision was the “beginning,” but not the end of the story, classifying the move to hold the main rate steady as “a rigorous review of the economic situation.”
Warsh also fielded questions regarding the five task forces set up by the central bank shortly after the start of his term, which are focused on examining areas including balance sheet policy decisions, how the Fed handles communications regarding monetary policy decisions, and a task force on assessing the impact of artificial intelligence.
The Fed Chair will be checking in with each of these task forces on their progress in the period between the Wednesday decision and the Jackson Hole Economic Symposium, set to take place between Aug. 27-29, he said.
