Federal Reserve (Fed) Chair Warsh said price stability remained the priority after the Federal Open Market Committee raised its policy rate by 25 basis points, in line with expectations.
Speaking at a news conference about the U.S. economy, Warsh said there had been improvement in recent months in new hiring, private-sector earnings and businesses’ capital investment. He added that the flow of credit to companies remained strong.
Warsh said it was difficult to characterize overall financial conditions as restrictive, noting that the accommodative financial stance had been reduced somewhat.
Inflation remains above target
Warsh said the Fed’s employment mandate, one of the responsibilities assigned by Congress, was in good shape, but inflation had remained above target for more than five years.
Pointing to price stability as the core focus, Warsh said inflation was at a very high level and that this situation had persisted for a long time. He said data released during the summer did not point to a meaningful improvement in underlying trends and added that the prices of many key inputs had risen during the period between meetings.
Warsh said it was necessary to be confident that the underlying trend in inflation was moving clearly and sufficiently quickly toward the target. Saying the Committee had concluded that this standard had not been met, Warsh noted that the decision to raise rates by 25 basis points was unanimous and reflected a determination to achieve price stability more quickly.
Fed’s risk assessment
Warsh said the economic projections reflected the views of Committee members and noted that he had not submitted a projection, as he did in June. He assessed inflation risks as tilted to the upside and risks to the labor market as broadly balanced.
Warsh said price pressures had emerged in most advanced economies in recent weeks and noted that central banks were conducting their assessments in line with their respective mandates.
No single data point will determine rate decisions
Warsh said he was not monitoring any single data point with a specific expectation, emphasizing that broad trends were more important than individual indicators that could be volatile. He said individual data points could contain misleading movements and that focusing too heavily on them carried risks.
Warsh attributed the rise in bond yields to economic strength, increased capital spending and geopolitical developments, and said the commitment to achieving price stability remained in place.
Warsh said the Fed could not influence individual prices, including oil prices, but would work to prevent such movements from spreading to the overall price level. He said he would not prejudge decisions that would be taken in the future.
Warsh said the decision was based on assessments of the path of employment and the strength of the economy, stressing that markets sometimes price in possible steps but that the Fed did not make its decisions based on those expectations.
Responding to a question about U.S. President Donald Trump’s call for lower interest rates, Warsh said the decision was the right step to fulfill the Fed’s mandate from Congress to ensure price stability.
Warsh said the state of the labor market, inflation trends and geopolitical developments had changed since the last meeting. He added that he had seen little data that would change his view that inflation trends during the summer had not met the desired criteria.
Assessments will continue in the coming months
Warsh said the latest decision demonstrated the Fed’s seriousness about its price stability objective. He said assessments would continue in the coming weeks and months, adding that he was not prepared to reach a firm judgment on future actions at this stage.
