As Fed Chair Warsh sticks to policy silence, colleagues voice their views

Warsh's colleagues by comparison were far more forthcoming about what they often call their "reaction function," an accounting of how they would respond to a given set of economic conditions. "I see it as prudent to give a bit more time to observe how inflation unfolds from here," Fed Governor Lisa Cook told the Exchequer Club of Washington, D.C., on Wednesday, adding that she sees the risk of higher inflation from the investment boom around artificial intelligence, price pressures from tariffs, and the war in the Middle East. "If we do not see signs of disinflation soon, I am prepared to act," Cook said, a clear reference to the possibility of a Fed rate hike. New York Fed President John Williams offered a more sanguine view, noting on Wednesday that while "inflation is unquestionably too high at about 4% ... there are encouraging reasons to expect that inflation has peaked and should edge down in coming quarters." Policy, he said, is "well-positioned," a phrase central bankers typically use to mean they see no reason to change it. Fed Governor Christopher Waller, speaking before data this week showed year-over-year consumer inflation had cooled in June to 3.5% from 4.2% in May, said Monday that he would need to see "several months" of easing inflation to feel confident that inflation is heading towards the Fed's 2% goal. More remarks from Fed policymakers are due before the Fed's regular pre-meeting communications blackout begins on Saturday, with both Dallas Fed President Lorie Logan and Fed Vice Chair Philip Jefferson due to speak on Thursday. Warsh continues to advocate not telling financial markets much. "There are plenty of people on Wall Street who are upset with me already that I'm somehow not feeding them all the information they've gotten before, and if they only had my dot, everything would be swell," he said on Wednesday, referring to the Fed's quarterly publication of policymakers' rate-path views, rendered as anonymized "dots" on a closely watched chart. The dot plot in June showed half of Warsh's 18 colleagues expect a rate hike by year end; Warsh did not submit a dot of his own. His message to markets, he said, is to watch the economic data, not pronouncements from Fed policymakers. "Play the ball, not the Fed," he said. So far Warsh's colleagues appear to disagree. Fed policymakers need to connect the dots between their economic outlooks and their expectations for rates, Williams said Wednesday, a view that Waller, who has been open about his policy differences with Warsh, has also pressed. "There's no change in that at all, and I think that that provides … that rich kind of set of perspectives of the 19 participants in the committee sharing their views," Williams said. Federal Reserve Chairman Kevin Warsh this week declared his determination to bring inflation down without hinting at how, even as colleagues publicly laid out their own views on the economic outlook and interest rates. The contrast highlights the difficulty of gauging how the Fed may react as renewed conflict in the Middle East again drives up the cost of fuel and AI investment continues to push up prices. It also shows Warsh's own challenges as he tries to reshape the central bank's communications with an eye to quieting what he sees as an overcommunicative group of colleagues. "We want to get policy right, and I think being somewhat more circumspect in our communications, at least for me, is a better way of calling balls and strikes," Warsh told members of the House Financial Services Committee on Tuesday. More than a dozen times that day and the next, when he testified before the Senate Banking Committee, Warsh reiterated his view that inflation was too high, telling U.S. Senator John Kennedy at one point, "It's not going to be permanent under my watch." "What are you going to do about it?" asked Kennedy, a Louisiana Republican. "We're going to look at our tools and the changing economy, both balance sheet and interest rate, and see whether we need to adjust policy to take it head on," Warsh said, giving away nothing on what he would need to see to precipitate action. "What are your options?" Kennedy pressed as he ticked off the possibilities — leave rates alone, raise them, or lower them — each of which Warsh agreed was an option, before suggesting none might be. "You use five task forces to get to the big and hard questions instead of trying to paper it over with policies that have not been proven a success," Warsh said, referring to the outside-expert-led panels he has convened to recommend changes to how the Fed conducts monetary policy, including its communications, by December. Fed policymakers next meet in less than two weeks and will convene three more times before the end of the year. Warsh said AI-driven price pressures, increasingly a worry cited by his colleagues, would likely increase "measured prices" over the next 12 months, but "whether that's inflationary or not, that's up to the Federal Reserve, and we're going to have something to say about that." Warsh's "answers on inflation remain puzzling, as does the fact that it is not clear what, if anything, he would be prepared to do to tackle inflation, other than 'having something to say about it,'" said Omair Sharif, the founder and president of forecasting firm Inflation Insights.

As Fed Chair Warsh sticks to policy silence, colleagues voice their views

Colleagues outline their views on inflation and rates

Warsh urges markets to watch the data, not Fed signals

Warsh keeps policy options open without offering specifics

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