Kevin Warsh has completed his second Federal Open Market Committee meeting as Federal Reserve chair, and we’ve still gained little understanding of how the central bank will operate under him. The Fed kept the federal-funds rate unchanged at today’s meeting.
The outcome was uncertain immediately before the meeting; as of yesterday, markets were pricing in a 30% probability of a rate hike. That’s unusual compared with recent history, as FOMC decisions have been gradually telegraphed in the weeks leading up to each meeting. But even more striking is that the Fed has been almost silent on its next steps.
The federal-funds rate has been held in a target range of 3.50%-3.75% for over seven months. The Fed’s most recent move was a cutting cycle, reducing the rate by a cumulative 1.75 percentage points from September 2024 to December 2025. But now the Fed is expected to start raising rates again, owing to accelerating inflation and diminished fears about the labor market.
Why didn’t the Fed go ahead and hike? We don’t know. The Fed’s meeting statement was unchanged from last month. We do know that, unlike at last month’s meeting, three out of 12 voters dissented from today’s decision, weighing in favor of a hike. In the press conference, Warsh was asked why the majority of the committee decided to stand pat and why the three dissenters argued for a hike. He declined to offer a substantive response to either question.
Altogether, Warsh revealed little meaningful information in the press conference. He wasn’t taciturn, but on most questions, he diverted to more philosophical issues related to monetary policy or simple platitudes. He did brandish some big talk around the Fed better meeting its goals, reiterating the phrase “five plus years … of high inflation” numerous times. But there was little concrete forthcoming.
Of course, Warsh’s philosophy is that the Fed should communicate much less than it has before, so today’s reticence was somewhat unsurprising. Warsh has spoken of a desire for market participants to spend more time thinking about the state of the economy and less time obsessing over the Fed’s judgment.
This leads to the one place where we might be able to glean insight on Warsh’s thinking: his commentary on recent market movements. He mentioned the recent rise in Treasury yields. The 10-year yield has increased by around 20 basis points since he became chair. He didn’t explicitly endorse the rise in yields, but he did lend some implicit support, saying it was an example of “markets reacting in real time to incoming information.”
Since this rise in yields has been accompanied by some firming in rate hike expectations, this suggests Warsh will support some policy tightening at upcoming meetings. Currently, the market expects one rate hike in 2026 and a second in early 2027.
