Trump’s Rate-Cut Pressure Fails to Move Warsh as He Stresses Persistent Inflation [Fed Watch]

Three officials backed a benchmark rate increase

Federal Reserve Chair Kevin Warsh said on July 29 that a brief easing in price pressures is not enough to declare inflation under control after it has run above target for more than five years.

In opening remarks at a press conference after the Federal Open Market Committee’s policy meeting, Warsh said, “You have to understand that when inflation has remained above target for more than five years, you cannot say it has stabilized based only on a slight decline in prices over nine weeks, or about a month.”

Before the FOMC meeting, President Donald Trump said the US should have the lowest interest rates in the world. Warsh showed little sign of aligning with that view. He said it would be wrong to set monetary policy based on a temporary shift in prices while inflation pressures persist.

“The Fed will not wait,” he said, adding that nominal and real yields across the Treasury curve have risen substantially since the June FOMC meeting. Current US rates are in roughly the top 10% of the market, he added.

Warsh said policy changes since he became chair are affecting markets. “Market participants are learning to move with the ball — the actual economy — rather than the referee, the Fed’s forward guidance,” he said. Market pricing will keep responding in the direction and magnitude investors judge appropriate.

He also suggested that the intense focus on the Fed is not desirable. “A central bank does not always need to be at the center of attention everywhere,” he said. Markets should be observed directly and without embellishment through their reactions and trends.

Warsh said officials at this FOMC meeting reviewed how the past five years of elevated inflation have shaped the policy backdrop, along with pandemic-era supply-chain strains, military conflicts, disruptions to energy supply, higher tariff rates and a surge in investment related to artificial intelligence.

Washington — Lee Sang-eun, Hankyung.com correspondent selee@hankyung.com