Following the Federal Open Market Committee's unanimous decision to raise the federal funds rate by 0.25 percentage points to a range of 3.75% to 4.00%, Federal Reserve Chairman Kevin Warsh delivered a hawkish press conference. This tone, consistent with his earlier remarks at Jackson Hole, suggested that the Fed intends to continue its aggressive approach to monetary policy. The market reaction was swift, with stock indexes falling and bond yields rising, as traders began to anticipate more rate hikes than previously expected.
Warsh stressed that while the U.S. economy is expanding at a solid pace, with robust productivity, strong capital investment, and resilient domestic spending, inflation remains too high. He noted that the 12-month change in total PCE prices likely stood around 3.6% in August, with core PCE and CPI prices at approximately 3.2% and 2.4% respectively. He indicated that underlying inflation trends have not meaningfully improved, and many categories continue to see price increases above 3% on both a 6- and 12-month basis.
Despite global uncertainties and geopolitical developments, Warsh highlighted the resilience of the U.S. economy. He pointed to strong labor markets, with a low jobless rate of around 4.1%, increasing job openings, and consistent unemployment claims. Warsh explicitly stated his belief that achieving lower inflation does not require harming the labor market. The Summary of Economic Projections from the Committee indicated median real GDP growth of 2.3% this year and 2.4% next year, with inflation falling to 2.3% next year, and the federal funds rate expected to be 4.1% by year-end and remain there next year. Warsh reiterated the Fed's unwavering commitment to achieving its 2% PCE inflation objective, emphasizing that the Committee's unanimous vote reflected this resolve.
