Fed Chair Kevin Warsh reaffirms 2% inflation target, signals no shift to higher tolerance
New Delhi, July 2
Federal Reserve Chair Kevin Warsh reaffirmed his commitment to the US central bank's two per cent inflation target even as President Donald Trump continues to push for interest rate cuts, as per a Reuters report.
"If people thought this central bank was going to be comfortable with an inflation objective above 2%, they would be disappointed," Warsh told a European Central Bank panel in Sintra on Wednesday that he remains firmly focused on the US central bank's 2 per cent inflation target, while offering limited guidance on the future direction of monetary policy or the economy beyond reiterating the inflation objective, the report noted.
This comes just two days after the US Supreme Court ruled that Trump could not dismiss Federal Reserve Governor Lisa Cook, reaffirming the central bank's independence even as the court expanded the president's authority to remove members of other independent agencies.
As per the report, Warsh said he had reviewed the ruling but does not expect it to alter the Federal Reserve's functioning.
Furthermore, the Fed chair said that central bankers would decide whether to adjust interest rates when they "shut the door" for their next two-day policy meeting beginning July 28. He also told the panel moderator that she would "fail" in any attempt to get him to comment on rate decisions or discuss the risks and factors shaping the policy debate.
As Warsh spoke, traders slightly trimmed their rate-hike bets, but still put 70 per cent odds on the Fed increasing borrowing costs at its September 15-16 meeting.
"It increasingly looks like investors' early assumption that a Warsh-led Fed would quickly cut rates will not play out," Oren Klachkin, financial market economist at Nationwide, wrote following Warsh's appearance.
"The balance of risks has clearly shifted," Klachkin added, while noting that he still expects the Fed to ultimately keep interest rates unchanged through the year.
— ANI
Reader Comments
"Balance of risks has clearly shifted" - that's the key takeaway here. The markets are realising that the 'Trump-friendly' rate cuts they expected won't materialise. It's a masterclass in central bank independence, even if it means higher borrowing costs for everyone.
As an Indian investor watching US markets, this is a bit worrying. If the Fed keeps rates high, it means more capital flowing to US bonds and less to emerging markets like India. But I admire Warsh's conviction - the 2% inflation target is non-negotiable for long-term stability. Bharat needs more of this discipline.
It's refreshing to see a central bank chair essentially telling a president 'no' in polite economic language. The Supreme Court ruling on Lisa Cook only reinforces that the Fed's independence is constitutional. Warsh seems to be playing a long game here - credibility over quick fixes.
This is what we need in India too! RBI should also stand firm against any political pressure to cut rates artificially. Warsh's approach of not commenting on individual rate decisions but reaffirming the inflation target is smart - it avoids market volatility while maintaining clarity. That said, 70% odds on a September hike... 🫣
The timing is interesting - just after the SC ruling on Fed independence, Warsh comes out strongly. It's almost like he's making a point. But here's my worry: if inflation stays above 2% and they keep raising rates, it could crush small businesses and housing sectors. Maybe a 2.5% tolerance with a gradual approach would be
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