Fed holds rates as Warsh offers no 'explicit signal on December'

Warsh described the jobs market as healthy, saying that conditions on the employment side of the dual mandate were “quite positive”. The priority, though, is clearly inflation. He emphasised again that Americans have been dealing with above-target inflation for close to six years, and that it is the Fed’s responsibility to get it down.

He also struck a mildly upbeat tone on the impact of September’s rate rise, saying that the Fed’s “monetary medicine” is beginning to work, and that financial conditions have tightened, although he was “unwilling and unable” to call them tight.

True to form, Warsh provided no explicit signal on December, though we see no reason to change our call for a hike at the next meeting and futures continue to price in around an 85% chance of one at the 8-9 December meeting. The message, as we read it, is that the committee is holding for now not because it is done, but because it wants to see a little more data, particularly on inflation, before acting again.

The dollar traded modestly lower following the meeting, a limited sell-off that we think reflects the already hawkish expectations heading in, which left the Fed a lot to live up to.

As we see it, the most noteworthy takeaway from the press conference was structural, and not policy related. Warsh announced that, starting next autumn, a select few future FOMC meetings will be dedicated exclusively to broad monetary policy strategy, with no vote on rates and no policy statement - one such meeting in 2027 and two in 2028. 

Details of these non-policy meetings were sketchy and the exact format is yet to be worked out, though Warsh framed the change as giving officials time for longer-term strategic deliberations.

We see this as another push from Warsh in the direction of dialling back forward guidance and limiting the Fed’s influence over day-to-day market moves, albeit to a more modest extent than had been suggested in the summer. For markets, fewer rate decisions both increases the importance of incoming data in shaping the expected rate path and could heighten volatility around the sparser announcements.