Federal Reserve Chairman Kevin Warsh announced that the Federal Open Market Committee (FOMC) decided to raise the target range for the federal funds rate by ¼ percentage point, setting it at 3¾ to 4 percent. This decision supports the Federal Reserve's dual mandate, with Warsh noting the Committee's continued policy of maintaining ample reserves in the banking system. He highlighted that economic activity is expanding at a solid pace, with resilient domestic spending, strong productivity growth, and robust capital investment, despite elevated uncertainty due to geopolitical developments. Warsh stated that while the U.S. economy appears to be strengthening, with improvements in new hiring, private-sector earnings, and business capital investment, inflation remains elevated.
Warsh emphasized that the primary focus of the Fed is on price stability, as inflation has been running above target for over five years. He noted that recent inflation readings do not indicate a meaningful improvement in underlying trends. Specifically, the 12-month change in total PCE prices was likely around 3.6 percent in August, with core PCE and CPI prices at about 3.2 percent and 2.4 percent, respectively. Many categories still show increases above 3 percent on both a 6- and 12-month basis. Warsh also mentioned that overall commodity prices have risen over the inter-meeting period, further contributing to inflationary pressures.
The Chairman confirmed the FOMC's unwavering commitment to its 2 percent PCE inflation objective. He stated that the Committee's unanimous vote to raise rates demonstrates their resolve to achieve price stability more timely. Warsh added that the FOMC aims to ensure credit and financial conditions align with their mandate, prevent price changes in some sectors from broadening, keep inflation compensation in market prices low, and maintain well-anchored inflation expectations. The median projections from the Summary of Economic Projections indicate real GDP growth of 2.3 percent this year and 2.4 percent next year, with total PCE inflation expected to be 3.7 percent this year, falling to 2.3 percent next year. The unemployment rate is projected to remain steady at about 4.1 percent, and the median participant judges the appropriate federal funds rate to be 4.1 percent at the end of this year, staying there next year. Inflation risks are considered to be to the upside, while labor risks are roughly balanced.
