Fed Chair Warsh calls for data-driven monetary policy

U.S. Federal Reserve (Fed) Chair Kevin Warsh emphasized that a data-driven approach should be adopted in monetary policy decisions and that reliance on forward guidance should be reduced. Warsh's message comes at a time when markets are trying to find direction through Fed officials' statements and inflation data ahead of the upcoming interest rate decision.

Gennadiy Goldberg, Head of U.S. Rates Strategy at TD Securities, had suggested positioning for the Fed not to raise interest rates in October ahead of inflation data. The expectation of moderate inflation and the stance of Fed officials against interest rate hikes were influential in this strategy. However, with inflation data exceeding expectations, the probability of an October rate hike briefly rose to 50 percent.

Market volatility was balanced by statements from Fed officials indicating that interest rates would be held steady. According to interest rate swaps, the probability of a rate hike in October fell below 15 percent. While New York Fed President John Williams stated that a rate hike might be appropriate later in the year, comments from Fed Vice Chair Philip Jefferson and Board Member Christopher Waller pushed market expectations downward. Warsh, in his statement on October 16, expressed that they do not predetermine meeting outcomes.