Federal Reserve Chairman Kevin Warsh said Wednesday that inflation risks have eased over the past few weeks – but stayed mum on the odds of interest-rate hikes in the latest sign that he will be more tight-lipped than his predecessor.
At a European Central Bank conference in Sintra, Portugal — his first appearance as chairman since the Fed’s meeting in June — Warsh said inflation risks “have come down” although he argued there’s more work to be done.
“If there were people in households, the business sector, the financial markets, who thought that this central bank was gonna be comfortable with an inflation objective above 2%, I guess they’d be disappointed,” Warsh said. “We’re gonna deliver price stability in the US.”
An aggressive anti-inflation approach would imply interest-rate hikes, not cuts – a sharp reversal from last year, when Warsh lambasted central bankers for not slashing rates fast enough after three quarter-point cuts.
But the economic landscape has shifted drastically since then.
Higher energy prices amid the war in Iran pushed inflation above 4% while the labor market remained surprisingly resilient.
Economists have warned that the rapid buildout of AI data centers could keep inflation stubbornly elevated – turning officials’ attention away from employment.
When pressed on whether inflation fears demand a response from central bankers, Warsh said: “I’m not going to make a judgment now.”
“There’s a lot of late breaking news on a series of these things. When we get into that room and shut the door, we’re going to have a good debate,” he added.
Warsh has argued that financial markets perform best when they react to actual data, not the Fed’s interpretation of the numbers – and on Wednesday, he dismissed concerns that a less outspoken Fed could leave markets in the dark.
“I hear this as if people don’t understand. I think they understand quite well,” he said.
After his remarks Wednesday, traders priced in a 30% chance the Fed will hike interest rates at its July 29 meeting – up from just 6% odds a month ago, according to CME FedWatch, which tracks 30-day Fed funds futures. Markets are leaning toward a hold in the current 3.5% to 3.75% range at the meeting.
If the Bureau of Labor Statistics’ June jobs report, slated for release on Thursday, comes in strong, it could add to arguments to raise rates.
The Dow Jones Industrial Average rose 0.3%, or 150 points, by approximately 1:35 p.m. ET, while the S&P 500 ticked up 0.1% and the Nasdaq dipped 0.2%.
Gold prices ticked up Wednesday after the precious metal suffered its worst quarter in 13 years in the three months through the end of June, as investors dumped the safe-haven asset over fears the Fed could raise rates.
Citigroup slashed its 12-month forecasts for bitcoin and ether, blaming weak investor appetite as massive AI IPOs have sucked liquidity out of the market.
In line with his efforts to minimize forward guidance, Warsh said Wednesday that the Fed’s “dot plot” projections will continue for “a short time at the very least,” but one of the five new task forces he announced last month will “revisit it.”
The “dot plot” last month showed that nine of 19 officials – excluding Warsh, who declined to participate – saw at least one rate hike by the end of the year, up from just one member in March.
In the final minutes of Wednesday’s hour-long appearance, Warsh was asked about the recent Supreme Court ruling blocking President Trump from firing Fed Governor Lisa Cook over allegations of mortgage fraud.
“We were doing so well,” Warsh joked when he was asked to comment on the decision. “So before the Supreme Court, the Fed acted independently and followed its remit. After the Supreme Court ruling, the Fed will continue to do so.”
The Supreme Court on Monday effectively delivered a split decision, protecting Fed policymakers from being fired without cause – but ruling in a separate case that Trump could fire officials at other regulatory agencies for any reason.