The Federal Reserve held interest rates steady on Wednesday, as expected, opting to delay any changes to borrowing costs until after next week’s US midterm elections while it awaits further data on inflation, which the central bank said “remains elevated,” Reuters said in a recent report.
The 10-2 decision to maintain the Fed’s benchmark interest rate within the 3.75%-4.00% range came with an upgraded assessment of an economy that the central bank now says is growing at a “strong pace.” Fed Chairman Kevin Warsh also expressed confidence that inflation can be lowered to the 2% target without having to “throw sand in the gears” and slow growth or raise unemployment.
Warsh, speaking at a press conference after the end of a two-day policy meeting, said he expects a report on third-quarter gross domestic product on Thursday to show strong investment and consumer spending and an acceleration of growth from the first half of the year. Warsh, however, said he still does not think the economy is “too hot” or generating demand-side inflation that needs to be curbed.
“The economy is pointing in the right direction. Is the economy running too hot? Is the economy running too strong? That isn’t the judgment of most of my colleagues,” said Warsh, arguing, as he has before, that changes in productivity, even predating the artificial intelligence boom, may allow the US to grow faster without as much inflation.
“The goal, in my view … isn’t to throw sand in the gears of the economy and throw people out of work. I don’t think we have to do that.”
Rather, he said, a higher Fed policy rate is already showing its impact in slightly tighter credit conditions that could, for example, slow business investment and which arguably contributed to recent stock market declines, another potential source of “disinflation” if it slows spending among wealthier families.
In comments to CNBC on Thursday, US Treasury Secretary Scott Bessent said the administration continues to have faith that Warsh will “find the right balance” between the 2% inflation goal and continuing economic growth.
The rate-setting Federal Open Market Committee’s latest policy statement, however, hinted that more rate hikes may be needed, and some of Warsh’s colleagues have been explicit in their concerns that demand, fueled by AI and healthy consumer spending, is starting to drive prices higher.
