Federal Reserve Chairman Kevin Warsh addressed why the central bank didn't raise interest rates on Wednesday
Federal Reserve Chairman Kevin Warsh spoke after the central bank's policy meeting on Wednesday.
Why didn't the Federal Reserve raise interest rates on Wednesday, given that most policymakers seem on board with a hike at their December meeting?
Fed Chairman Kevin Warsh tackled that question during his press conference after the central bank's latest rate decision, which matched expectations. He suggested Fed officials want to see more readings on the economy before determining when or whether to raise interest rates again.
"The period right in front of us is information rich," Warsh said Wednesday. "There is a lot that's happening in the world. My colleagues and I are keen to take notice of it. So this coming period, what do I think we're going to be able to do? We're going to be able to figure out what's the appropriate protocol as part of this package that we started to deliver five months ago to deliver price stability."
Warsh added: "I'm encouraged by the progress we've made in a short period of time, but if the crux of your question is, 'You haven't delivered yet, you haven't achieved price stability,' you're right about that - but we're working on it."
Warsh refused to signal any hints ahead of the Fed's December meeting, saying he would not prejudge meeting.
The chairman also leaned somewhat on the modest tightening in broader financial conditions as a reason for pausing, noted Alex Pelle, senior U.S. economist at Mizuho Securities.
"We were left wanting more from the Fed's explanation for its October skip," Pelle said. He noted that the response from financial markets - with 10-year yields BX:TMUBMUSD10Y moving up and the dollar DXY moving down - "were not great signals of Fed credibility on inflation."
Warsh's comments came as Fed officials continue to face pressure to get inflation closer to their target of 2% by raising rates. By some measures, inflation was hotter in the most recent reading than in prior months. Fed watchers are focused in particular on how Warsh communicates the central bank's strategy, with some critics saying that he has been giving "nonanswers."
Robert Sockin, chief U.S. economist at PGIM, said the Warsh press conference was perplexing.
"While more data is always better," Sockin said Warsh did not sufficiently explain why the backdrop of strong growth, a solid labor market and high inflation did not justify a rate increase.
Last month, the Fed's policy-setting committee rolled out its first interest-rate hike in three years. Markets have been expecting additional tightening, particularly in December, albeit not at this week's meeting.
"The door is open for further hikes as soon as December," wrote Thomas Simons, chief U.S. economist at Jefferies.
Pelle said there is a risk that the market will push the Fed to hike more at a future meeting to make up for the skip in October. "Inflation is not in a good place. It is likely to get worse between now and year end," he said in an interview.
Warsh's press conference came just six days before Election Day, when American voters in midterm elections are expected to cast ballots against candidates from President Trump's Republican Party in part because of their frustrations with persistent inflation. Democrats look on track to win a majority in the U.S. House of Representatives, while control of the Senate is more uncertain.
Trump picked Warsh to be Fed chief in January, and Warsh took over the job in May.
-Victor Reklaitis -Greg Robb
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