The Federal Reserve meeting in Washington is expected to leave its benchmark interest rate unchanged on Tuesday and Wednesday. Kevin Warsh is presiding over his second policy meeting this week while inflation stays above the Federal Reserve’s 2% target for more than five years.
Kevin Warsh on inflation
Earlier this month, Warsh told Congress he had "no tolerance'' for elevated inflation. That gives this meeting a clear split: the chairman’s language is hard-edged, but policymakers are still expected to hold steady while they wait for more economic data.
Joseph Egelhof and Guneet Dhingra at BNP Paribas Securities said it is possible the central bank will "release the kraken" with a "shock rate hike" this week. Their view sits far from the market consensus, which still points to no change at this meeting.
Federal Reserve and markets
The unchanged-rate expectation matters for borrowers and investors because it leaves current pricing in place for now. It also keeps the focus on what comes next, not what is happening this week, as policymakers weigh whether they have enough information to act without unsettling financial markets.
That caution runs against the inflation backdrop. Prices have stayed above the 2% target for more than five years, so the issue facing the Federal Reserve is not whether inflation is real, but whether the data now justify a move.
Sept. 15-16 at Washington
The next Federal Reserve meeting is expected on Sept. 15-16. If policymakers are going to break from this week’s pause, that meeting is the one most likely to show whether Warsh and his colleagues are ready to move after waiting for more data.
For now, the message from Washington is restraint, not action. The market still gets a pause, Warsh still gets a test, and the question shifts to whether Sept. 15-16 brings a different result.
