Wrapup 1-Warsh's words may matter more than the anticipated Fed rate hike

The pressing question now is how Warsh frames the policy decision, and whether global bond investors see it as a credible response to inflation that has been above target for more than five years and which has moved up since the start of Trump's current term in the White House. "If they hike and it is unanimous — that is a strong signal," particularly if accompanying economic projections show policymakers anticipate another rate hike this year and perhaps again in 2027, said Robert Sockin, chief U.S. economist at PGIM. Though Warsh says he wants to avoid saying too much about the rate path, Sockin said the Fed chief's speech at the Jackson Hole economic symposium in Wyoming last month included language that would fit the moment. "I look at this as a cousin to his guidance at Jackson Hole. That if inflation does not move back down with sufficient speed, we have more work to do," Sockin said. "What would be challenging is if ... he sounds dovish and says this is a small calibration. Markets would react poorly to that." The group was evenly divided in the projections released in June, with nine of 19 feeling rates would need to rise by at least a quarter of a percentage point by the end of 2026, and nine anticipating they could remain where they are or drop a quarter of a percentage point. Warsh, who dislikes the "dot plot" chart of rate projections, did not submit one of his own. Since then, support for a rate hike has been building. Three policymakers dissented in favor of a rate increase at the July 28-29 meeting, and several others have said since that they were ready to raise rates unless inflation showed signs of falling soon. It has not. The Personal Consumption Expenditures Price Index, the measure the Fed uses for its 2% target, increased at a 3.7% annual pace in June and July after a steady rise through much of last year. Data due on September 30 is expected to show little if any change. Though many economists still feel inflation pressure is likely to ease eventually, oil's recent rise back above $100 a barrel, Trump's unveiling of fresh tariffs on Canada, and his threats of more import duties, and continued economic growth amid an AI spending boom have raised enough risk for Fed officials to consider taking action. Warsh acknowledged as much in his recent Jackson Hole speech, saying policymakers needed to be confident "that underlying inflation is moving to our objective, clearly and at sufficient speed," while noting recent data "do not tell me that underlying trends have meaningfully improved." The global bond market is also pulling the Fed towards higher rates. Yields on the 10-year U.S. Treasury, for example, on Tuesday climbed above 5% to a 19-year high. Market pricing currently puts the odds of a hike on Wednesday at greater than 90%. That expectation is not in itself a reason to hike, and Warsh in his Jackson Hole speech cautioned against the "hall of mirrors" that can trap officials if they start adopting the views of financial markets that are, in turn, reflecting what they hear from the Fed. But whether a rate hike is characterized as a one-off, a first step with others perhaps to follow depending on incoming data, or some other formulation, Warsh's post-meeting press conference will be as important as the policy decision itself. The Federal Reserve is expected on Wednesday to hike interest rates for the first time since 2023, a decision driven by stubbornly high inflation and a global rise in borrowing costs that will heighten scrutiny of how U.S. central bank chief Kevin Warsh describes the first monetary policy change on his watch. The Fed is due to release its monetary policy statement at 2 p.m. EDT (1800 GMT) along with updated quarterly economic projections that will include officials' estimates of the appropriate year-end policy rate. Markets are pricing more than 90% odds of a rate increase on Wednesday. Raising rates will fly in the face of what President Donald Trump envisioned when he named Warsh to lead the Fed earlier this year, saying he expected his appointee to lower them. The president recently threatened to impose new import tariffs if the Fed does not reduce the cost of borrowing.

Wrapup 1-Warsh's words may matter more than the anticipated Fed rate hike

Inflation and projections will shape the message

Bond yields and inflation keep pressure on the Fed

Fed expected to deliver first rate hike since 2023

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