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This afternoon Federal Reserve Chair Kevin Warsh sided with markets over President Donald Trump, voting with all other board members to hike interest rates by 0.25%.
“The committee’s unanimous vote shows our resolve to achieve price stability on a timelier basis,” Warsh told reporters after. “I said in Jackson Hole, ‘trends matter,’” he said later. “My judgment [then] was the inflation summer trends weren’t passing the test; I’ve seen very little information since that would make me reverse that decision, so I’ve stuck with it.”
Investors took the announcement in stride — but it’s unclear whether Trump will, too.
National Economic Council Director Kevin Hassett said Tuesday the White House would “respect the process … whatever [Warsh] does.”
Yet the hike’s proximity to midterms is already bringing heat from its allies. “The Fed’s never done that before, so it’s not great,” Sen. Bernie Moreno, R-Ohio, told Semafor. “I’m disappointed.”
“I have no idea” whether Trump will push back, Moreno added. “But I don’t think it was the right decision because [it] will do nothing to lower gas prices.
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A hotter-than-expected August inflation report — and stronger-than-expected August jobs report — drove markets to price a 94% likelihood that the Fed would raise rates. Warsh, who declined to answer questions about whether he had any discussions with Trump, had a choice between unsettling investors or breaking with a president who chose him to help bring borrowing costs down.
“We made this decision today based on our assessment of the situation; based on our assessment of the trajectory for employment; based on our judgment on the strength of the economy,” Warsh said. “Sometimes the market tries to prejudge our outcomes — I’ll observe market prices and see what they have to say — but today was our decision.”
As usual, Warsh opted out of penciling in the central bank’s next moves. But 16 out of 18 members predicted at least one more hike by the end of the year.