Arabic version: وارش يواجه تساؤلات حول المصداقية بعد تثبيت الفائدة
According to Cnbc, Federal Reserve officials voted 9-3 to keep interest rates unchanged at Kevin Warsh’s second meeting as chair of the rate-setting committee, prompting investors to reassess the outlook for policy and inflation.
Following Warsh’s press conference, investors sharply lowered the perceived chance of a rate increase at the Fed’s next meeting. The probability that rates would remain unchanged rose 20 percentage points to 45%, according to CME FedWatch. At the same time, the 30-year Treasury yield reached its highest level since 2007, while the 2-year Treasury yield declined.
The market moves raised questions about whether investors believe the Fed will respond quickly to inflation. Warsh said inflation had been above the Fed’s 2% target for at least 63 months, but he declined to detail what would cause him to support higher rates. The federal funds rate has remained at 3.5%-3.75% for months.
Warsh has moved away from forward guidance, a practice under which Fed leaders signaled their expected path for rates. He said policymakers need to observe market reactions to developments “direct and unfiltered.” Jon Hilsenrath wrote that Warsh needed to explain what would lead him to raise rates, adding that “the bond market puked on him.”
Other economists described the press conference as unclear. Eric Winograd of AllianceBernstein called it “confusing and often internally contradictory.” Warsh said June consumer-price-index data, which showed prices declining 0.4%, was “not much” of a consideration, while saying inflation remained “elevated.” He also said the Fed would stick with the personal consumption expenditures index for now, though a task force could recommend changes to its role as the official target.
Michael Feroli of JPMorgan Chase said Warsh’s comments raised questions about his credibility in delivering lower inflation. Three voters dissented from the decision to hold rates steady, and Feroli said pressure could grow for the rest of the committee to act if economic data fails to improve rapidly.
