Warsh Signals October Rate Hold Despite Hot Inflation, Dimming Hike Bets

Federal Reserve Chair Kevin Warsh signaled the Fed could leave interest rates unchanged this month, sharply weakening market expectations for another increase.

Bloomberg reported on Oct. 16 that Warsh, speaking at the International Monetary Fund’s annual meeting in Bangkok that day, said the central bank had tightened monetary policy somewhat about a month earlier and would not prejudge decisions at upcoming meetings.

“We tightened monetary policy somewhat about a month ago,” Warsh said. “I won’t prejudge what decision we will make at future meetings.”

Warsh avoided specific comments on the U.S. economic outlook or the direction of monetary policy. On economic conditions since the September Federal Open Market Committee meeting, he said the global economy had moved largely in line with the Fed’s expectations.

After his remarks, market expectations for another rate increase fell sharply. The probability of a benchmark-rate hike at the Oct. 27-28 FOMC meeting dropped to less than 15% from about 27% before he spoke. Major U.S. stock-index futures rose, while the dollar edged lower.

Wall Street analysts also leaned toward a pause. Goldman Sachs said recent remarks from Warsh and other Fed officials suggest the central bank will skip an October rate increase, with the final hike of the year coming in December.

The Fed raised its benchmark rate by 0.25 percentage point in September.

U.S. inflation data released earlier this week all came in above market forecasts. The consumer price index rose 3.7% in September from a year earlier, above expectations for 3.6%. The producer price index also rose 1.3% from the previous month, far exceeding the 0.5% forecast.