Fed Chair Warsh: Inflation Risks Down, Price Stability Promised
United States Federal Reserve Chairman Kevin Warsh stated that price risks have diminished in recent weeks, while reiterating his commitment to restoring inflation to the US central bank’s 2 per cent target. “Expectations of inflation over the first four weeks of this period have come down, inflation risks have come down,” Warsh stated Wednesday at the European Central Bank’s annual Forum on Central Banking in Sintra, Portugal. “We’re going to deliver price stability in the US, that’s what this committee has signed up to do, and our objective is to do that,” he said. “Tactics, the strategy and the rest, that’s still to come,” Warsh said. Warsh underscored the Federal Reserve’s independence in deciding the appropriate policy direction, despite ongoing pressures from US President Donald Trump to reduce interest rates. “We’ve been an independent central bank for a very long time. We’re going to be an independent central bank at this moment and you’re going to see no changes on that,” he stated during a panel discussion at the ECB conference.
Warsh reiterated his stance that he will not provide “forward guidance” concerning future interest-rate policy, indicating a significant shift at the US central bank. When directly questioned about the possibility of a rate hike during this month’s meeting, Warsh remarked that the panel moderator was “trying to get me to break this rule” regarding the avoidance of forward guidance. “She’s going to fail.” And “We’re going to chart a new course,” Warsh said. “I want us to have a good family fight when we meet in four weeks,” he stated, alluding to the upcoming policy decision. “At my press conference, I said we’re not going to give forward guidance because we’re meeting in six weeks,” Warsh said on a panel alongside other prominent central bank leaders. “I have an update for you,” he added — noting the July 28-29 meeting is now just four weeks away.
While Fed officials maintained interest rates last month, they indicated an increasing consensus for potential hikes this year, as inflation accelerates at its quickest pace since 2023. Updated forecasts for the Fed’s benchmark rate indicated that half of the 18 officials anticipate a rate increase within the current year. Regarding the Federal Reserve’s potential shift away from forward guidance, Warsh announced in June the establishment of five task forces, one of which will focus on communications. The remaining aspects encompass the balance sheet, the Federal Reserve’s utilisation of data, productivity and employment, as well as the central bank’s frameworks for addressing inflation. Warsh indicated that it is probable there will be announcements next week regarding task-force membership. Participants will encompass external experts, along with certain individuals from beyond the borders of the United States, he stated.
In the same event, European Central Bank President Christine Lagarde indicated that the risks to euro-area inflation and growth have diminished in intensity. “I think risks by the way that we have to the upside on inflation and to the downside of growth are probably more broadly balanced than they were a few weeks ago as a result of what we’re seeing, which happens at speed,” she stated. Just three weeks ago, Lagarde’s institution became the first in the Group of Seven to raise interest rates following the outbreak of the Iran war.
