Fed Chair Warsh remains hawkish and focused on bringing price stability
Fed keeps interest rates steady at 3.75-4%. Inflation remains elevated above the 2% target for over 6 years. Geopolitical uncertainty is the primary reason for rising inflation. Economic activity is expanding and the labour market remains strong. In 2027, the FOMC schedule will change, with the same 8 Fed meetings annually, but one meeting will focus only on monetary policy strategy without any rate decision. In 2028, the Fed will have two such monetary policy strategy meetings and six on rate decisions. Warsh says it is important to keep ‘time and space’ for such ‘strategic deliberations’ to focus on the ‘long-term horizon.’ On December rate hikes, Warsh says the coming period is ‘information rich’ and future hikes will depend on it. Warsh says he is ‘unwilling and unable’ to call financial conditions tight. Warsh believes higher interest rates do affect AI spending, irrespective of revenues. Warsh clarified that ‘politics’ or ‘midterm elections’ had no role in today’s decision about Fed rates. Any decision on shrinking the Fed balance sheet will only come early in Q1 2027, after recommendations from a task force. Overall, he doesn’t see current economic growth causing inflation but is closely watching the numbers for the future.
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