The US Federal Reserve held interest rates steady on Wednesday in a divided vote, indicating growing pressure on the central bank to address heightened inflation.
The Fed’s federal open market committee voted ۹-۳ to maintain rates, with three dissenting members indicating a preference to raise the rate by a quarter-percentage point. It was the first time in a decade that three board members shared dissent over a policy decision.
Cooler inflation data published earlier this month may have eased expectations for an imminent rate hike, but Kevin Warsh, the new Fed chair, said in a news conference that the committee was less interested in “any one piece of data” and was more focused on overall trends. The tenuous peace deal between the US and Iran has also sent energy prices creeping up again.
Warsh has repeated that he wants policy decisions to emerge from a “good family fight” and said on Wednesday he “got one” during his second Fed meeting as chair.
“Most of our discussion was on the big questions that matter to the conduct of monetary policy,” Warsh said. “We didn’t hide from them. We weren’t scared of them. There was a lot more interaction between my colleagues, it was a real family fight. My view, which you’ve long heard, is that’s the better way to get policy right.”
Just two weeks ago, one of the dissenting bank presidents, Lorie Logan of Dallas, made the case for “modestly higher interest rates”, arguing in public remarks that they would better balance the “outlook and risks” for the Fed’s dual mandate of maximum employment and price stability.
“Inflation has been too high, for too long, and does not appear to be on track all the way back to ۲%,” she said. “And the inflation risks are to the upside. The labor market, meanwhile, is solid. Without any policy restraint, these conditions are likely to continue until there’s an unanticipated shock.”
Logan joined Beth Hammack in Cleveland and Neel Kashkari in Minneapolis in the dissenting minority. The three bank presidents have formed a bloc before, most recently in April when they all disagreed with the committee’s decision to include a forward looking statement, or “easing bias”, in the Fed’s news release.
Though Warsh was adamant about delivering price stability in Wednesday’s news conference, it was unclear exactly what tools he planned to use to achieve that goal. While he said that interest rates could be used as “part of that solution”, he added: “I wouldn’t say it’s in isolation.”
Warsh has signaled he is ushering in a new era at the central bank, one that emphasizes a reservedness toward forward guidance. At his first meeting in June, he announced five new taskforces – comprising economics professors, business leaders and former central bank governors – that are meant to rethink how the Fed approaches its communications, data, balance sheet policy, inflation framework and the impact of artificial intelligence on its policy judgments.
The US-Israel war with Iran, which has endured since the end of February, has pushed energy prices higher for American households and businesses.
The Fed’s main tool to combat higher prices has traditionally been to hike interest rates, which raises borrowing costs and, in effect, cools the economy. But Trump has persistently and aggressively called for rate cuts since the start of his presidency, going so far as to attack the previous Fed chair, Jerome Powell – who is still on the Fed’s board – with verbal insults and target him with a Department of Justice investigation for failing to deliver.
Fed governors periodically release forward-looking projections illustrating when they think further rate changes will occur. Last month, half of all Fed members projected at least one rate increase this year, in a U-turn in outlook from just months earlier, when a majority of Fed members called for at least one rate cut over the same time period.
Wednesday’s decision is the fifth time rates have been left unchanged since December, despite Donald Trump’s renewed calls to lower rates.
Trump on Monday repeated his push for lower interest rates, adding that the US “should have the lowest rates in the world”.
Trump spared Warsh from any blame, calling him “fantastic” and implying Warsh would want to cut rates despite the opinions of his fellow board members, who Trump called “very political”.
