Warsh Holds Rates at 3.75%–4%, Says Fed Will Hold Fewer Rate-Setting Meetings From 2027

Warsh opened by saying the Federal Open Market Committee decided to maintain the target range for the federal funds rate at 3.75% to 4%. In support of the Fed's dual mandate, he said economic activity is expanding at a strong pace. He described uncertainty as remaining, in part because of geopolitical developments, but said domestic spending has been resilient, productivity growth is strong, and capital investment is robust.

On the labor side, Warsh said job gains have kept pace with the workforce and the unemployment rate has changed little. Inflation, however, remains elevated. He said: "Inflation remains elevated. The committee believes that the accumulation of more information will help it determine the policy stance appropriate to ensure a timely return of inflation to the 2% goal." He added that the committee will deliver price stability.

Warsh said economic growth has strengthened. GDP growth in the first half of the year was revised up from an earlier estimate of 1.8% to 2.4%. He said the third quarter appears to have advanced even more rapidly, with healthy consumer spending likely running above 3% growth and business investment likely rising at about a double-digit pace.

He noted that capital expenditures are at a historically high share of GDP. High-tech investment is leading the acceleration, but other categories have also broadened, and he said these trends bear watching. On employment, he said the jobless rate is lower than a year ago, payroll growth is noticeably above last year's pace, and the four-week moving average of unemployment insurance claims is at its lowest level in generations. He called conditions on the employment side of the dual mandate quite positive, but said Americans are still dealing with inflation that has run above the committee's objective for close to six years.

Warsh said that since the Fed's policy action in September, financial and credit conditions have started to change. They have tightened for some businesses and households, which he said is much as the Fed would expect, and market participants are becoming somewhat more discerning in their capital allocations.

He said that while overall financial conditions are tighter, he is "unwilling and unable" to call them tight. He said these developments broadly move in the direction of a longer, more durable period of economic growth and price stability. He also said the committee discussed geopolitical developments and fast-moving technology changes, and observed bouts of volatility and shifting correlations in financial markets, though it was not surprised by them.

Warsh said real activity is pointing in the right direction, but inflation is too high. Energy and related prices have moved higher again in recent weeks. He said the Fed's job is to ensure that relative price changes in some sectors do not broaden across the economy and that inflation expectations remain anchored.

Warsh announced a change to the FOMC schedule starting next fall. He said the committee believes eight meetings per year is the right number, but in 2027 one meeting will focus exclusively on broad monetary policy strategy, with neither a vote on the federal funds rate nor a policy statement anticipated. The remaining meetings will be regular policy-setting meetings. He expects that in 2028 there will be two strategy meetings and six for setting policy.

He explained the reasoning: getting policy right involves assessing near-term developments at timely, regular, and information-rich intervals, but it is equally important to reserve time and space for strategic deliberations and for thinking anew about big questions over longer horizons, "focusing as I say on the left side of the decimal point." He called the setting of the meeting schedule and agenda an institutional choice affecting the nature and quality of deliberations and ultimately the wisdom of decisions, not an administrative detail.

Ki Smith of the New York Times said there has been essentially no progress toward the 2% inflation target, that the labor market remains stable, and that most colleagues seem to be on board with raising rates in December. He asked why the Fed did not raise rates today. Warsh said he had seen the question coming from recent reporting and said that ensuring price stability is not about a fixed date on a calendar or an isolated data point. If it were, he said, the job would be easier and the economy would not have suffered nearly six years of inflation above target.

Warsh described what he called a "new monetary medicine" introduced in the five months since he took office. First, he said, the committee doubled down on the 2% inflation target, saying the Fed owns it and is taking responsibility for it. Second, the committee laid out a framework, previously presented at Jackson Hole, on how monetary policy should work, what the transmission mechanisms are, and how the Fed will deliver. Periodically, the Fed interrogates reality, and in September, when it last met, it acted by removing a dose of accommodation, meaning it cut rates.

Warsh said inflation compensation measured by swap prices and many other measures is moving the right way, and that inflation expectations have also moved in the right direction. He said the world is quite unsettled, and that without the Fed, expectations might have gone the wrong way. He said he feels good about these signposts. He described the period ahead as information-rich and said the committee will work out the appropriate protocol as part of the package it started five months earlier.

He said he is encouraged by the progress made in a short period, but acknowledged that the Fed has not yet achieved price stability. "You're right about that," he said, "but we're working on it."

A reporter asked whether the statement's line that more information will help determine the policy stance means the current level of the federal funds rate might already be the right one. Warsh said the committee has to determine the appropriate protocol. He said the overwhelming consensus in the room is that the new approach is starting to work, but there are no firm conclusions. "If we had a firm conclusion about the conduct of monetary policy, we'd announce it to much fanfare today."

He said the committee decided to take stock, evaluate what it is seeing, and ask whether the period ahead is likely to provide more clarity on the appropriate protocol. His own judgment, and that of an overwhelming number of colleagues, is that it would.

A reporter said several members of the board and committee told reporters before the meeting that it would take more time, which had a profound effect on the outlook for the funds rate, and asked whether Warsh had been involved in discussing that message. Warsh said his 18 colleagues are quite independent and that anyone who had been in the room over the past couple of days would believe that. He said one way to test that independence is that he does not submit a dot and does not plan to, but the 18 members do. He said the suggestion that he sends messages out does not describe the committee he knows: "serious, sober, responsible people."

Warsh also addressed the new meeting format. He said that at the strategy meeting in 2027 and the two strategy meetings in 2028, he does not anticipate making a policy decision or issuing a policy statement. He said it is not yet obvious what those meetings might produce, and that details of the new format will not be shared until next fall.

Asked about the Fed's role in sustaining economic progress, Warsh said Congress gave the Fed a mandate to deliver stable prices and full employment in the context of financial stability. He said the best thing the Fed can do in the current environment is to ensure stable prices. He said that if the aim were to harm the least well-off most, one would let inflation above the Fed's target continue for six years, and that this is why price stability is the most important thing the Fed can do.

He said: "We will deliver price stability. No ifs, ands, or buts, and that continues to be the case."

Asked when reports from the Fed's working groups would be available, Warsh said the five task forces are hard at work and he has seen nothing that would constitute a final report, though he has checked in periodically and was impressed by the rigor of their discussions. He said some, but not all, of the groups will probably meet the year-end deadline he gave them. Their work, he said, will be a catalyst for thinking about productivity and jobs, an inflation framework, and the best data to do the job, as well as the balance sheet. He said these investments are unlikely to shape the current policy conjuncture but are expected to bear fruit in the next one.

He announced that the productivity and jobs task force will hold a field hearing on November 16, inviting a broad range of people who have strong views about the implications for jobs in the near, medium and long term, and whether a productivity gain will happen quickly or slowly. He said he is keenly interested in refining his own views on the question.

A reporter from Newsmax quoted Trump from an October 7 Oval Office event saying that Warsh is "great, but Kevin's one vote out of a board with numerous people that were put on by Obama and Biden and a couple by me," and asked whether Warsh agreed that the board would like to see the country do badly. Warsh said he would not respond to quotes from public officials. He said his five months at the Fed included a serious, sober discussion, and that the committee came to the right policy decision for this moment.

A Bloomberg reporter said the economy is strong, inflation is well above 2%, and surveys show households expect inflation to stay above the Fed's goal, not just in the short term. The reporter asked whether holding rates risks households reading the decision as a sign that the central bank has a soft inflation target.

Warsh said there is no soft or implicit inflation target. The target is price stability at 2%, as measured by the PCE price index. He acknowledged it took six years for inflation to affect consumers, and said consumers also interrogate reality by looking at gas station prices. He said short-term inflation expectations have risen, but across most, though not all, measures, households, businesses and financial markets have confidence that the central bank will deliver price stability.

Asked whether there is a direct correlation between oil prices and U.S. inflation, Warsh said he would not engage in hypotheticals. He said there had been a stable and fairly strong correlation between oil prices, which have generally moved up this year, and market-set interest rates, which are not the rates the Fed controls, until very recently. Oil prices have continued to rise largely because of geopolitical events, and crack spreads between crude oil and refined products remain elevated. Market interest rates, however, have rolled over to the downside over the last several months.

Warsh said that if oil prices were to fall, probably again because of geopolitical events, the Fed would have to examine the effects on its dual mandate and financial market prices, and decide what to do about it. He noted that oil futures prices have moved up over the last several weeks.

Warsh said there was a narrative that rate increases would not affect AI investment because investors' expected returns are so different, and that he was skeptical of that view. "Interest rates get in the cracks. Interest rates affect directly or indirectly almost everything." He said that since early September, market participants have been discriminating between the kinds of investments they want to make, credit spreads for certain assets have widened while others have not, and financial conditions have tightened, though not significantly.

He also said it is convenient to say the economy's strength is all about the new technology wave, but the capital expenditure story, using data from the last meeting onward, is not just robust and strong but broadening. That makes it harder to argue that strength is confined to narrow pockets than it would have been several quarters ago.

ABC News's Elizabeth asked whether the midterm elections, six days away, factored into the decision to hold rates, and how the public can be assured politics was not at play. Warsh said politics played no role in the decision. He said he had spent two days with colleagues and heard no utterance about politics, elections, or anything happening in the next week or so, and that he does not believe it had any role in the decision for him or his colleagues. He said the coming period is information-rich but has nothing to do with politics.

A Korean newspaper reporter asked how the Fed would avoid disrupting foreign official holders of Treasuries and dollar funding markets in South Korea and Japan if balance sheet shrinkage moves forward. Warsh said he pays close attention to the Korean economy because a large share of the inputs for the new technology surge comes from Japan and Korea, with some from Singapore. He said he has known the new Korean central bank governor for 20 years.

Warsh said the balance sheet task force is working on its recommendations, which will feed into the FOMC probably in early in the first quarter, though he did not want to be held to that timing. Any change to the balance sheet, he said, will follow serious consideration of the task force's proposals, and is unlikely to have a material effect on the current policy conjuncture. He said he looks forward to examining that question with the outside task force.

A Wall Street Journal reporter asked whether AI investment, becoming more dependent on external financing, makes aggregate demand more sensitive to interest rates, and whether last month's rate cut went as Warsh expected. Warsh said that the effects on financial market conditions broadly were consistent with his expectations. Reuters asked how much demand from the AI investment boom is adding to inflation and how sensitive that is to Fed control.

Warsh said the economy is strong and that most colleagues do not judge it to be running too hot. He said productivity has been rising for a couple of years, which is raising economic growth without necessarily causing inflation. He said the goal is not to throw sand in the gears of the economy and throw people out of work, and that the dominant way policy is being put into practice is through tightening financial conditions, which have tightened a bit since the last meeting. He said that is not something the committee is uncomfortable with, because it shows policy is working, and that it can make the economy more durable while still achieving stable prices.

Politico asked whether Warsh personally, or the Fed as an institution, would be involved in a White House hearing next week on Lisa Cook's future and allegations made against her. Warsh answered, "Not to my knowledge." The briefing ended after that answer.