Fed maintains interest rates at 3.75% to 4% and will reduce the number of rate decision meetings from 2027
President Kevin Warsh announces a strategy-only meeting, without votes or announcements, and says that inflation, above the target for almost six years, remains a priority.
BY THE X-TRADER NEWS NEWSROOM · REPORTING FROM YAHOO FINANCE · 4 MIN
The Federal Reserve maintained the basic interest rate in the range of 3.75% to 4% this Wednesday, and its president, Kevin Warsh, took advantage of the press conference to announce a change in the calendar: from 2027, one of the FOMC's eight annual meetings will be dedicated exclusively to monetary policy strategy, with no vote on interest rates and no statement. The broadcast was broadcast on the Yahoo Finance channel.
Warsh said he hopes that by 2028, two meetings will have this format, which would leave six meetings per year to set the fee. According to him, the Fomc continues with eight annual meetings, but the calendar is "an institutional choice" that affects the quality of deliberations. He said the details of what will be released at the strategy meetings have not yet been defined and will be presented next fall.
Strong economy, high inflation
The diagnosis presented by the Fed president was that of expanding activity. According to Warsh, GDP in the first half of the year was revised from 1.8% to 2.4%, and the third quarter appears to have seen even faster progress, with consumption above 3% and business investment growing at a double-digit pace. He stated that capital expenditures are a historically high share of GDP and that investment in high technology leads the acceleration, although there is expansion to other categories.
In the job market, the unemployment rate is lower than a year ago and job creation is above last year's pace. Weekly unemployment insurance claims, on a four-week moving average, are at the lowest level in generations, according to the director.
The problem, Warsh said, is inflation, which has been above the committee's target for nearly six years. He said that energy prices have risen again in recent weeks and that the Fed's role is to prevent the rise in relative prices in some sectors from spreading throughout the economy and that expectations remain anchored. Asked by a New York Times reporter why he didn't raise interest rates at this meeting, since most of his colleagues seemed in favor of a rise in December, Warsh replied that the fight against inflation does not depend on a fixed date or isolated data. He said that the committee reaffirmed the 2% target and that, in September, it removed "a dose of accommodation". He acknowledged, however, that price stability has not yet been achieved.
Interest, AI and politics
Regarding the boom in investments in artificial intelligence, Warsh said he was skeptical regarding the thesis that the sector would be isolated from interest. For him, "interest seeps through the cracks" and directly or indirectly affects almost everything. He cited as evidence since September the greater selectivity of investors, the widening of credit spreads in some assets and a moderate tightening in financial conditions. According to him, the tightening is something the Fed is not uncomfortable with, as it indicates that the policy works without the need to, in the leader's words, throw sand into the gears of the economy.
Asked about a possible looser inflation target, Warsh denied that there is an implicit target: the objective is 2%, measured by the PCE index. Regarding the possibility of a new increase this year, he refused to anticipate decisions and said he did not believe in future guidance (forward guidance) outside of crisis situations. He also stated that he does not send his "point" to the interest projections of the committee, made up of 18 members, to illustrate the independence of his colleagues.
Six days before the mid-term legislative elections, Warsh stated that politics had no role in the decision and that he did not hear the issue mentioned at the meeting. Asked about President Donald Trump's comments about the Fed board, he said he would not respond to quotes from public officials. Regarding the White House hearing regarding Lisa Cook, he stated that he was not aware of any involvement by him or the Fed.
For investors, the central message is that the Fed signals the continuation of the tightening cycle, without yet committing to a date or magnitude. The president also mentioned five ongoing task forces, including one on the Fed's balance sheet, whose findings are likely to reach the committee early in the first quarter, and a public hearing on productivity and jobs on Nov. 16.
Automatically translated from Portuguese.
