NEW YORK — Federal Reserve Chair Kevin Warsh said the central bank's abrupt interest rate increase was driven by inflation that "has been too high for too long."
Speaking at a 30-minute news conference immediately after the Federal Open Market Committee meeting on the 16th, Warsh said the move "will help return inflation to the Fed's 2% target in a timely manner" and stressed that the central bank "will achieve price stability." The remarks echoed the statement the Fed issued alongside its decision to raise the benchmark rate by 0.25 percentage point to a range of 3.75% to 4.00%. Warsh said the decision came "at a time when the U.S. economy appears to be strengthening," adding that indicators including new hiring, private incomes and corporate capital spending "have improved in recent months and pointed in a positive direction." He also said inflation "has run above target for more than five years," and that "what is clear is that inflation has been too high and has lasted too long."
Warsh cited a stronger U.S. economy, still-elevated inflation and a changed geopolitical landscape as reasons the Fed shifted from its July hold to this month's increase. Inflation risks are "tilted to the upside" while labor market risks are "broadly balanced," he said, cautioning that "the trend is what matters, and because the data are noisy, relying too heavily on any single indicator is risky." Warsh also left the door open to further increases, saying it is "hard to describe current financial conditions as tight" and that the Fed had "removed some of the accommodation."
Asked whether the rate increase could serve as a response to higher global oil prices stemming from the closure of the Strait of Hormuz, Warsh said the Fed's job is "to make sure some price changes don't spread across the economy and generate second- and third-round effects." That, he said, "is our responsibility." Asked when he had last spoken with President Donald Trump, who has said he would halt trade with countries running surpluses unless rates come down, Warsh drew a line, saying he had "nothing to say." He added that "independence runs both ways" and that "those who handle trade and fiscal policy should also stay within their own lanes" — remarks read as aimed at Trump and Treasury Secretary Scott Bessent, who have sought to push rates lower through trade and fiscal tools.
On bond yields that rose ahead of the Fed's decision, Warsh said markets are "moving to reflect the future, and I want to leave them free." He attributed the rise in long-term Treasury yields to a strengthening U.S. economy, competition among hyperscalers — operators of very large data centers — to secure capital spending funds, and conflicts around the world.
The Fed earlier voted unanimously at its two-day FOMC meeting in Washington to raise the benchmark rate by 0.25 percentage point to 3.75% to 4.00% a year. It was the first increase in three years and two months, since July 2023. In the Summary of Economic Projections dot plot — a quarterly chart showing individual policymakers' rate forecasts as dots — officials put the median rate at 4.1% for the end of this year, signaling room for one more increase. The Fed also dropped a previous line in its statement attributing inflation to a "supply shock" in the energy sector.
