Federal Reserve System Chair Kevin Warsh stated that inflation risks have decreased over the past few weeks, reaffirming his commitment to returning inflation to the U.S. central bank’s target of 2%. Speaking on Wednesday at the European Central Bank’s annual central bank forum in Sintra, Portugal, Warsh noted that “inflation expectations over the first four weeks of this period have decreased, inflation risks have decreased”. He reiterated a statement from his first press conference as Fed Chair last month, emphasizing that the central bank will ensure price stability. “We will ensure price stability in the United States; that is what this committee is obligated to do, and our goal is to achieve it,” he said, adding that “tactics, strategy, and the rest are still ahead.”
Kevin Warsh also emphasized the Fed’s independence in determining the appropriate policy course, despite ongoing calls from President Donald Trump for interest rate cuts. “We have been an independent central bank for a very long time. We will be an independent central bank now, and you will see no changes in that,” he stated during a panel discussion at the ECB conference. Warsh also confirmed that he would not provide “forward guidance” on future interest rate policy, marking a shift in the U.S. central bank’s approach.
Rejection of Forward Guidance
When directly asked if a rate hike was being considered at this month’s meeting, Warsh responded that the panel moderator was “trying to get me to break this rule” regarding the rejection of forward guidance, and “she will not succeed.” “We will chart a new course,” said Warsh, adding: “I want us to have a good family argument when we meet in four weeks,” referring to the next policy decision. At his first press conference last month, Warsh noted that Fed policymakers agreed that “forward guidance” “does not fit the current policy environment.” He also updated the information, stating that the meeting on July 28-29 would now take place in four weeks, not six, as he had previously said.
Plans for Rates and Working Groups
Although Fed officials last month kept interest rates steady, they indicated growing support for rate hikes this year as inflation rises at the fastest pace since 2023. Updated projections for the Fed’s benchmark rate showed that half of the 18 officials forecast a rate hike this year, although Warsh declined to provide his own forecast. The Federal Open Market Committee (FOMC), which sets the rates, last month unanimously voted to maintain the target range for the federal funds rate at 3.5% to 3.75%. Investors are now pricing in at least one rate hike of 25 basis points by the end of the year. Regarding whether the Fed will more permanently refrain from “forward guidance,” Warsh announced in June the creation of five working groups, one of which will examine communications. Other groups will cover the balance sheet, the use of Fed data, productivity and employment, and the central bank’s inflation frameworks. Speaking on the panel, Warsh said that news about the membership of these working groups, which will include external experts and some individuals from outside the U.S., would likely emerge next week.
