The Federal Reserve on Wednesday held interest rates steady in Kevin Warsh’s second meeting as chairman – but the committee’s vote revealed growing dissent as three policymakers wanted to hike rates instead.
In a 9-3 vote, the central bankers kept rates in the key 3.5% to 3.75% range – even as Dallas Fed President Lorie Logan, Cleveland Fed President Beth Hammack and Minneapolis’ Neel Kashkari tried to raise rates by a quarter point over concerns around inflation.
It seems Warsh, who took over as chairman from Jerome Powell in May, has gotten his wish for a “good family fight” at the Fed. Investors are expecting the committee to flip in favor of raising rates by the fall.
The odds of a quarter-point hike at the Fed’s Sept. 16 meeting jumped to 72% Wednesday, up nearly 20% from the previous day, according to CME FedWatch.
“The FOMC may have just kicked the can down the road. Also worth noting there were three dissents, unlike last time, when the vote to hold was unanimous,” Nic Puckrin, markets expert and former Goldman Sachs analyst, said in a note Wednesday.
“The hold is good news for borrowers and a respite for markets, at a time when tech stocks have already been collapsing. But ordinary Americans would do well to prepare for a hike in September – mentally and financially.”
Logan, Hammock and Kashkari all recently warned that persistent inflation would lead to higher rates. Fed Governor Christopher Waller issued a similar warning, though he voted to hold rates steady Wednesday.
After the war in Iran severely disrupted global energy supplies, raising costs and sending inflation above 4%, some Fed officials – including Warsh – have called for a focus on lowering inflation, which typically indicates a bias toward raising rates.
In June, inflation slowed to 3.5% as energy prices started to fall – but this week, the US and Iran once again resumed fighting after a multi-day pause and President Trump vowed to “beat the f–king s–t out of Iran” in response to surprise overnight attacks.
The question is whether one good inflation report is enough to shake off concerns around prices – sparking a debate around whether officials would be raising interest rates too soon, potentially stunting growth, or waiting too long to raise rates, allowing inflation to run rampant.