Leadership3 publishers3 min readPublished
Warsh recused himself from the rate projections his committee published
The Fed's quarter-point hike arrived with a projections table carrying eighteen members' views of where rates finish the year and none from Kevin Warsh, who rejects forward guidance and says the next decision follows the data.
The Board Room · Leadership desk
What happened
- The Federal Open Market Committee voted unanimously on Wednesday to raise rates by a quarter point, the first increase since summer 2023 and the first policy change of Kevin Warsh's tenure as chair.
- Warsh declined to say whether more hikes were coming and rejected the idea of forward guidance, saying future decisions would depend on incoming economic data.
- Eighteen committee members submitted views on where rates will end up, and Warsh recused himself from the exercise because he does not believe in forward guidance.
- In its quarterly projections the committee said it expects GDP growth to stay relatively strong, unemployment to hold steady and inflation to remain above its 2% goal through the rest of the year.
- Trump, who nominated Warsh, wrote on Truth Social that US interest rates should be 1% or less because the country is the best credit in the world.
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Why it matters
- constraint A company setting first-half borrowing assumptions has to hold a band of outcomes open, and the chair has ruled out the one instrument that would narrow it.
- contradiction Fitch's Sonola says a robust economy gives the Fed room to raise further, while Navy Federal's Long describes an early adjustment meant to avoid hiking much; the gap decides how much tightening a plan should carry.
- decision Debt service and headcount draw on the same cash flow, so a firm with floating-rate borrowings going into next year chooses which of the two it protects.
- exposure If Trump follows through on suspending trade relations with deficit countries, the cost of a monetary decision lands on importers' input prices.
Twelve of the eighteen members who submitted projections expect exactly one more hike before the year ends. Two expect no further move and four expect two [8]. A standard move is a quarter point, so the published views run from no additional tightening this year to half a point of it [9].
Justin Wolfers, a professor of public policy and economics at the University of Michigan, wrote on X that "Silent Kevin remains largely silent. It's up to you to guess the what, the where, the why, and the next" [13]. He added the reason: "Remember, he's Silent Kevin because he wants markets to focus on the economy rather than the Fed" [14].
Heather Long, chief economist for Navy Federal Credit Union, took a signal from the meeting anyway. "He doesn't like to give forward guidance, but he's telegraphing it's probably going to take more than 1 hike," she said on X, calling the big news a "mid-cycle adjustment" of "2 or 3 rate hikes" [15][16]. Her count covers the whole adjustment, while the projections stop at the end of the year.
Business Insider reported that one change will not show up in monthly bills, and that months of sustained hikes are required before households notice [18]. So the planning problem is the timing of the next two moves. Warsh said future decisions would depend on incoming economic data [4], and Jerry Tempelman, a former senior analyst at the New York Fed, said the "disinflation experienced earlier this summer did not continue" [25]. Business Insider reported that inflation remains above the 2% goal largely because of supply shocks from the Iran War and changing White House tariff policy [33].
Olu Sonola, head of US economics at Fitch Ratings, put the demand-side caution plainly. "But the economy's ability to withstand higher rates should not be confused with consumers' ability to absorb them," he said [21]. He also said aggregate resilience "will mask a widening divide between consumers insulated from higher rates and those being squeezed by increasingly expensive credit" [22]. In housing, Bill Banfield, chief business officer at Rocket Mortgage, said "For anyone house hunting right now, it's a buyers' market in many metros, with inventory at a six-year high and plenty of room to negotiate" [24].
The vote also settled a question about who owns the decision. Vox called the hike a direct rebuke to Trump, who nominated Warsh and has spent more than a year demanding cuts [36]. Jacob Robbins, an assistant professor of economics at the University of Illinois at Chicago, said the committee "demonstrated their independence from President Trump's calls for lower rates" [35]. Warsh, confirmed by the Senate in May and several months into a four-year term [32], declined to answer questions about Trump at the September 16 press conference and said "Independence is a two-way street. We let people who do trade policy and fiscal policy stay in their lane" [30][31].
What to watch
- Whether disinflation resumes: Tempelman said the summer's disinflation stopped, and a return would pull the projections back toward holds.
- Whether Trump acts on his threat to suspend trade relations with deficit countries now that the hike has gone through.
- Trump's effort to remove Governor Lisa Cook, which Vox reported is still ongoing and which would change the composition of the next vote.