FOMO Keeps Target Rate After Family Fight

After a contentious internal debate, the Federal Open Market Committee (FOMC) decided to hold steady at the second meeting under Chairman Kevin Warsh’s leadership, maintaining the target range for the Fed Funds Rate at 3.5% to 3.75%.

A split vote characterized the outcome. Unlike the unanimous decision recorded in June, three members of the committee—Beth M. Hammack of the Cleveland Fed, Neel Tushar Kashkari of the Minneapolis Fed, and Lorie K. Logan of the Dallas Fed—voted to raise the rate by 25 basis points.

The division among the voting members nearly mirrored market expectations. The CME Group’s FedWatch Tool had estimated a 68.5% probability of holding steady, with a 31.5% chance of a rate hike to 3.75% to 4%, based on 30-Day Fed Funds futures pricing.

Warsh described the internal deliberations as a robust discussion focused on the “big questions” facing monetary policy. He characterized the debate as active and “nothing inertial,” suggesting the committee considered a wide range of policy tools.

Related: Fintech Revenue Surges 22% in New Report

“I asked for a good family fight, and I got one,” Warsh said at the 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.”

Warsh acknowledged that the committee addressed the impact of five years of high inflation and strained supply chains. He noted that the discussion involved “what’s in the full range of what we can do and might want to do in the period ahead.”

Supply chain shocks in energy and other sectors have kept inflation above the FOMC’s 2% target. Warsh stated that little could be done to cure inflation in the nine weeks since he took office or to achieve a month of modest price decreases.

The chairman emphasized that five years of high inflation might have created a mistaken impression among households and businesses that the Fed’s target was higher than 2%. He firmly rejected the idea of a “soft inflation target” or a “soft implicit target.”

Related: Infantino’s reforms reveal flawed leadership choices

“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%,” Warsh said.

Warsh is currently preparing for the Jackson Hole Economic Symposium in August, an event that often sets the tone for the rest of the year’s monetary policy. He has not yet finalized his speech.

He intends to discuss the “big questions” regarding productivity, demographics, and the global economy amid current economic shocks. Warsh also mentioned he plans to check in with the task forces he announced in June, though he has not decided whether his Jackson Hole speech will be a broad overview or a more traditional setup for the actions expected between September and December.