Fed Chairman Kevin Warsh: Rate Hike Was Not Driven by Market Guidance
US Federal Reserve Chairman Kevin Warsh announced that the 25-basis-point rate hike decision was not guided by market pricing, but rather focused on inflation and price stability.
Following the 25-basis-point interest rate hike, US Federal Reserve Chairman Kevin Warsh stated that the decision was not driven by market pricing guidance and that the primary focus remained on inflation and price stability.
Rate Hike and Inflation-Focused Decision
Following the Fed's 25-basis-point rate hike decision, US Federal Reserve Chairman Kevin Warsh stated that inflation is too high and has remained at this level for too long.
Emphasizing that the central bank's primary focus is price stability, Warsh expressed that the unanimously adopted decision was shaped by the economy expanding at a solid pace and strengthening indicators.
Inflation Trends During the Summer Months
Warsh noted that inflation data announced during the summer months did not point to a meaningful improvement in underlying trends and that inflation has been running above target for over five years.
Stating that total annual PCE inflation in August was estimated at around 3.6 percent, Warsh reported that core PCE and CPI rates also remain above the 2 to 3 percent band.
Current Status of the Labor Market
Stating that the US labor market is one of the fundamental indicators of strength in the economy, Warsh reported that the unemployment rate remains low at around 4.1 percent.
Saying that job openings and weekly working hours have increased, Warsh emphasized that the employment side of the Fed's dual mandate is currently in good shape.
Priority of the 2 Percent Inflation Target
Recalling that officials agreed at the July meeting that inflation was too high, Warsh said it must be ensured that core inflation is progressing toward the 2 percent target at a sufficient pace.
Stating that the FOMC decided today's standard has not yet been met, Warsh expressed that the unanimously adopted decision demonstrates the determination to achieve price stability.
Market Expectations and Forward Guidance
Answering questions at the press conference, Kevin Warsh emphasized that the decision was not made under the guidance of market pricing, while avoiding giving guidance on future rate steps.
Responding to reminders that rate hikes might continue with a series of increases, Warsh stated that he is not in the business of forward guidance and described today's decision as measured and responsible.
Three Key Elemental Developments
Stating that three elements stood out in the approximately seven weeks since the July meeting, Warsh drew attention to the data set showing the economy is strengthening.
Expressing that summer inflation trends failed the test and geopolitical developments affected the outlook, Warsh noted that these three elements contributed to a joint decision.
Dependency on Single Data and Fed Independence
Evaluating the intensive tracking of August CPI data by markets, Warsh emphasized that dependency on a single data point is a dangerous fixation and that trends are what matter.
Answering questions regarding President Donald Trump's statements and the independence of the Fed, Warsh stated that the institution will stay within its own mandate and that independence is a two-way street.