Trump’s Pressure for Fed Rate Cuts Falls Flat as Warsh Stresses Persistent Inflation [Fed Watch]

Three officials called for a benchmark rate increase

Federal Reserve Chair Kevin Warsh said on July 29 that a few weeks of softer inflation data are not enough to declare price stability after inflation has run above target for more than five years.

"People need to understand that when inflation has remained above target for more than five years, you cannot say it has stabilized after just nine weeks, or about a month, of modest price declines," Warsh said in opening remarks at a press conference following the Federal Open Market Committee's policy meeting.

Before the FOMC meeting, President Donald Trump said the US should have the lowest interest rates in the world. Warsh, however, showed little sign of accommodating that demand. He said it would be wrong to set monetary policy based on a short-lived move in prices while inflationary pressure continues.

"The Fed will not wait," he said, adding that nominal and real yields have risen substantially across the Treasury curve since the June FOMC meeting. Current US rates are in roughly the top 10% by market standards, he added.

Warsh said the policy changes since he became chair are affecting markets. "Market participants are learning to move with the ball — the real economy — rather than the referee," he said, referring to the Fed's forward guidance. Market pricing will continue to respond in the direction and to the extent investors deem appropriate.

He also indicated that excessive focus on the Fed is undesirable. "A central bank does not need to be the center of attention everywhere, all the time," he said. "We need to observe market reactions and trends directly, without filters."

Warsh said the FOMC had reviewed how the past five years of elevated inflation have shaped the policy environment, along with pandemic-era supply-chain strains, military conflicts, energy supply disruptions, higher tariff rates and a surge in artificial intelligence-related investment.

Lee Sang-eun, Washington correspondent, selee@hankyung.com