Federal Reserve Chair Kevin Warsh said the central bank’s latest policy meeting delivered the “family fight” he had called for, as policymakers debated the future direction of interest rates amid persistent inflation concerns and Middle East tensions.
The Federal Reserve kept its benchmark lending rate unchanged at 3.5%-3.75% for the fifth consecutive meeting, with the conflict in the Middle East adding uncertainty to the inflation outlook.
The decision was not unanimous, with Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari and Dallas Fed President Lorie Logan dissenting in favour of a quarter-point rate increase.
The three dissents marked the most policymakers voting for a rate move in the same direction since September 2016. However, Warsh said he viewed the disagreement positively.
“I asked for a good family fight and I got one,” Warsh said during a post-meeting news conference. “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.”
Investors have increasingly priced in higher interest rates, with markets expecting more than one rate hike by the end of the year.
Longer-term borrowing costs have also risen, including the benchmark 10-year U.S. Treasury yield, which is not directly controlled by the Fed.
Warsh said markets should play a larger role in assessing economic conditions and shaping financial conditions.
“Markets have made decisions because we stepped back from trying to influence,” Warsh said, adding that the Fed should avoid getting the market’s perspective “all fogged up by giving it our own forecast”.
According to the CME Group FedWatch Tool, markets are pricing in a 57.4% chance of a 25-basis-point rate hike at the Fed’s next meeting in September.
