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Federal Reserve Chairman Kevin Warsh indicated that higher-than-expected inflation had not influenced his view of the U.S. economy, prompting traders to further reduce their bets on a rate hike this month.
Speaking at an IMF summit in Bangkok on Friday, Warsh said he would not “prejudge” his plans for the U.S. central bank’s next policy vote, but added that economic conditions were “broadly” in line with what policymakers predicted when they raised borrowing costs for the first time in three years in September.
“We have come to a judgment: What do we see in the global economy and its impact on the United States? Warsh said. “I will say that, generally speaking, in the month since then, the world has generally conformed to our expectations.”
Expectations for what Fed officials will do at their Oct. 28 meeting have shifted sharply this week. Bets on a rate increase soared as high as 55 percent after higher-than-expected U.S. inflation figures on Wednesday, before retreating.
They fell further after Warsh’s comments, from about 27 percent to about 15 percent on Friday, according to Fed funds futures.
“Along with other recent comments from FOMC participants, Warsh’s comments indicate that the FOMC is expected to take a pause in October,” Goldman Sachs economists noted, adding that they expected officials to raise rates at the final Fed meeting of the year in early December.
The U.S. dollar slipped 0.1 percent against a basket of key trading partners following Warsh’s comments, while S&P 500 futures rose 0.3 percent.
Warsh’s remarks come after U.S. inflation rose to 3.7 percent in September, beating forecasts, amid rising fuel prices triggered by the war in Iran. Data released on Wednesday also showed that underlying prices – which exclude volatile changes in food and energy products – rose to 2.6 percent, from 2.4 percent in August.
Warsh declined Friday to say explicitly how the central bank would respond at its meeting this month.
“I don’t prejudge the meetings,” he said. “I don’t think it’s necessary to say now what I might do in the meetings we’ll have during the rest of this year.”
The Fed Chairman sought to reduce his “forward guidance” regarding future interest rate developments. “We’re not in that business anymore,” he said.
Fed officials indicated in September that they expected only one more rate hike before the end of the year.
The Fed raised its federal funds target range in September for the first time since July 2023, leaving the benchmark short-term rate in a range of 3.75 to 4 percent.
The increase came despite pressure from U.S. President Donald Trump to reduce borrowing costs. Most economists believe a rate cut would put the U.S. economy at risk of overheating and fuel price pressures.
Warsh said he remained concerned about high inflation, saying central banks in the United States and elsewhere recognized that price pressures were too strong.
“It’s hard to be in a discussion about central bankers and not compare notes and hear the same thing about surging prices,” Warsh said.
San Francisco Fed President Mary Daly, a non-voting member of the federal interest rate-setting committee, told Reuters on Wednesday that while further rate hikes were “more likely than not,” the timing of further hikes was not “urgent.”
“I think we have the time we need,” Daly said in remarks after the September CPI data was released.
Other senior FOMC officials, including New York Fed Vice Chairman and Chairman John Williams and Vice Chairman for Monetary Policy Philip Jefferson, have indicated they believe they can be patient and wait to raise borrowing costs a second time.
Additional reporting by William Sandlund in Hong Kong
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