Federal Reserve Chair Kevin Warsh could deliver a major surprise today as policymakers conclude their two-day meeting. While most economists expect the Fed to keep its benchmark rate at 3.5%–3.75%, stubborn inflation and renewed energy-price pressures have put a quarter-point hike firmly back on the table.
The Fed funds rate chart shows how quickly policy shifted from aggressive post-pandemic tightening to rate cuts and may well be on its way for a rate hike.
Warsh has been pretty vocal about his “no tolerance” stance for elevated inflation. That hawkish stance was evident even in his first Fed meeting, when rate cuts stopped being the Fed’s base case.
The decision is complicated by the inflation data itself. Warsh has previously favored alternative measures that show softer underlying price pressures. But oil-driven inflation linked to the Iran conflict has also strengthened the argument for keeping rates higher—or even raising them.
A hike today could shock markets.
A hold is unlikely but may be accompanied by a warning of a September hike. But either way, the direction of travel has clearly changed.