The Fed announced that it will hold key interest rates at 3.50% to 3.75%.

  • The decision came with three dissents in favor of an increase. 
  • Warsh supported keeping rates steady this meeting, but reiterated that the central bank keeps its inflation target at 2%.
  • Fed statement repeated the vow to pursue price stability.

The U.S. Federal Reserve left interest rates unchanged in Kevin Warsh’s second decision as the Fed chair on the back of elevated inflation and a strong job market. The Federal Open Market Committee approved the following statement for release by a 9 – 3 vote. 

The choice to maintain rates represented the fifth consecutive pause by officials. This move comes as the Fed pivots its attention toward inflation due to energy price fluctuations resulting from the conflict in Iran, while the job market remains resilient.

In their post-meeting statement, officials said inflation remained elevated and vowed to deliver price stability. Voting against the monetary policy action were Beth M. Hammack, Neel Kashkari, and Lorie K. Logan, who preferred to raise the target range for the federal funds rate by 1/4 percentage point at this meeting. 

“Inflation remains elevated relative to the Committee's 2 percent goal, in part reflecting supply shocks that have driven price increases in certain sectors, including energy. The Committee will deliver price stability,” as per the Fed’s monetary policy statement.

Warsh Takes Hawkish Jab, Says No Soft Inflation Target 

The Fed governor, during a press conference, stated that the Fed will not have any soft inflation target and will adhere to the 2% target. 

Warsh once again emphasized that policymakers remain deeply concerned about inflation, affirming they “won’t hesitate” to take action. However, he refrained from explaining why interest rates should not be higher immediately, noting only that future decisions will depend on incoming data.

Warsh To Observe Market Activity

Warsh stated that the Federal Reserve plans to keep a close eye on market behavior moving forward.

"Markets are reacting in real time," he remarked. "In the period ahead, we've got important decisions to make about the policy rate. Markets in the intervening period, I think, have quite a bit of decisions to make."

He added, "We'll be continuing to watch that market information, see how it responds to incoming events. And that can help inform our decision-making when we meet in seven or eight weeks."

How Markets Reacted To The Fed 

The S&P 500 was down 0.3%, Nasdaq 100 was last down 0.2%, and the Dow Industrials fell 1.4% as of 3:10 PM ET.

Treasury yields were also higher. The 2-year yield was down nearly 3 basis points at 4.271%. The rate on the 10-year Treasury was up 2 basis points at 4.632%.

At the time of writing, the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 index, was down 0.4%, while the Invesco QQQ Trust (QQQ) lost 0.2%. Retail sentiment around the S&P 500 ETF on Stocktwits was in the ‘ bearish’ territory. 

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