But given the Fed’s full-throated rhetorical assault on inflation under newly installed Kevin Warsh, who took the helm from Jay Powell after his term expired, a surprise rate hike felt plausible.
Further, there was a much different “feel” to the Fed under Warsh’s leadership.
For starters, the press release following the minutes tallied just 130 words, less than half the 341 words from the April statement under Powell. It brought back memories of the Greenspan Fed of the 1990s.
It was, as Warsh framed it, “shorter, simpler,” and just the “facts.” And the focus was squarely on inflation. A remark in Warsh’s opening statement that “inflation has been running well ahead of the Fed’s long-stated inflation goal of 2% that’s been going on for more than 5 years” set the tone for the meeting.
Moreover, the phrase “price stability” was uttered 14 times during his press conference, while little was
said about employment.
As he seeks to leave his mark on policy and the Fed itself, Warsh is also looking to implement reforms he publicly advocated before taking the Fed’s helm.
Without diving into the policy weeds, he is focused on five key areas and aims to provide further detail by year-end, including how the Fed communicates its policy and actions to the public.
Bottom line—the hawks are circling
The Fed’s forceful tone on inflation is putting a rate hike in play at the July meeting, a major shift from earlier in the year.
While probabilities can change quickly, a closely followed gauge from the CME Group puts the odds of a July rate increase at about 38% as of last Thursday, up from just 8% one week earlier.
Officials largely coalesced around Warsh at his first meeting, but the consensus frays when it comes to the path forward, particularly on how best to engineer a lasting return to price stability.
According to official Fed projections, half of policymakers are taking a wait-and-see attitude on inflation as oil prices slip, while the other half would like to take more concrete steps.
Is Warsh preparing for higher interest rates or simply tough talk out of the gate? If he is looking to tighten policy, he’ll need to foster consensus.
