SINTRA, Portugal ― Federal Reserve (Fed) Chairman Kevin Warsh said on Wednesday he will stick firmly to the US central bank’s 2-percent inflation target and “disappoint” anyone who expects loose monetary policy despite President Donald Trump’s call for interest rate cuts.
“If there were people in households or the business sector, in the financial markets, who thought that this central bank was going to be comfortable with an inflation objective above 2 percent ― well, I guess they’d be disappointed,” Warsh told a European Central Bank (ECB) panel.
Asked if the potential for disappointment extended to Trump, who picked Warsh to take over as head of the Fed and has said he expects borrowing costs to fall, Warsh said, “We have been an independent central bank for a long time. We are going to be an independent central bank at this moment, and you will see no changes on that.”
Warsh spoke just two days after the United States Supreme Court ruled Trump could not fire Fed Governor Lisa Cook, affirming the central bank’s standing even as the justices expanded the president’s power to remove members of other ostensibly independent bodies.
The public appearance in Portugal, Warsh’s second since taking over as Fed chief in May, saw him join with other top central bankers in what became a common rejection of “forward guidance” and a seeming reluctance even to say much about the economy.
Warsh said US central bankers will decide whether to raise rates, for example, when they “shut the door” and begin their next two-day meeting on July 28, and told the moderator of the panel she would “fail” to break his rule against commenting about rate decisions or even the risks and factors framing the debate.
Traders slightly trimmed their rate-hike bets as Warsh spoke, but still put 70 percent odds on the Fed increasing borrowing costs at its Sept. 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 after Warsh’s appearance.
Speaking at the ECB’s annual policy forum in the Portuguese hillside town, Warsh said, “We get into that room and shut the door, we’re going to have a good debate, but I don’t have much more for you than that.”
“I am not going to give forward guidance,” Warsh continued, answering a follow-up question from CNBC anchor Sara Eisen saying that, “Sara is trying to get me to break this rule. She is going to fail.”
He later extended his rule to the economic outlook, usually a staple of Fed commentary and distinct from discussing rate outcomes.
“We are playing Mad Libs now?” Warsh said when Eisen asked about his view of upcoming economic growth, referring to a popular word game.
“You’re back to forward guidance. I’m going to disabuse you of trying to extract that.... My view is financial markets and the real economy work best when you look at what’s happening in the real economy. You make your own judgments.”
