The “family fight” over setting the Fed Funds Rate that Federal Reserve Board Chairman Kevin Warsh has desired resulted in the Federal Open Market Committee (FOMC) maintaining its current 3.5% to 3.75% target at the second meeting under his leadership.
“I asked for a good family fight, and I got one,” he said at Wednesday’s FOMC post-announcement press conference. “That’s the purpose… Most of our discussions were on the big questions that matter to the conduct of monetary policy.”
The two-day fight addressed the impact of five years of high inflation on current policy, the effects of strained supply chains and resulting price increases, and the role of monetary policy and strategies in achieving price stability.
“There was nothing inertial about that discussion. It was an active, robust discussion about what’s in the full range of what we can do and might want to do in the period ahead,” he said.
Unlike June’s unanimous vote to maintain the FOMC’s target rate, Beth M. Hammack, president and CEO of the Federal Reserve Bank of Cleveland; Neel Tushar Kashkari, president and CEO of the Federal Reserve Bank of Minneapolis; and Lorie K. Logan, president and CEO of the Federal Reserve Bank of Dallas, voted to raise the Fed Funds Rate by 25 basis points.
The division nearly matched the CME Group’s FedWatch Tool, which estimated a 68.5% chance the FOMC would maintain its rate and a 31.5% chance of an increase to 3.75%-4%, based on the 30-Day Fed Funds futures price.
Inflation Target
Acknowledging that supply chain shocks in energy and other sectors have kept inflation above the FOMC’s 2% target, Warsh noted that little could be done to cure inflation in the nine weeks since he became chairman or to achieve a month of modest price decreases.
“For some households, businesses, and market professionals, five years of high inflation have left a mistaken impression… that the Fed’s implicit inflation target was somehow above 2%,” said Warsh. “Let me reiterate: There is no soft inflation target. There is no soft implicit target. Not on this committee’s watch. There’s only a target, and it’s 2%.”
No Jackson Hole Preview
Keeping true to form, Warsh shared that he has not yet begun his speech for the Jackson Hole Economic Symposium in August, which has historically set the stage for what the FOMC would do in the second half of the year.
He said he would like to ask the “big questions” about what is happening to productivity, demographics, and the global economy amid the current economic shocks.
“I haven’t made a decision whether it’s going to be a big-picture speech or whether it’s going to be a more traditional setup for all the action we’re going to have between September and December,” he said. “I will tell you one other thing I’m doing between now and Jackson Hole. I’m checking in with those task forces [that I announced in June].”