Federal Reserve Chair Kevin Warsh said inflation risks have declined recently but stressed that the central bank's determination to achieve its existing 2% target remains unchanged, in his first external appearance since taking office. He also said he would judge monetary policy independently and would not be swayed by U.S. President Donald Trump's pressure to cut interest rates.
Warsh made the remarks Tuesday at an annual policy forum hosted by the European Central Bank (ECB) in Sintra, Portugal, where he appeared as a panelist alongside ECB President Christine Lagarde, Bank of England (BOE) Governor Andrew Bailey, and Bank of Canada (BOC) Governor Tiff Macklem. "Inflation risks have decreased over the past four weeks," Warsh said, adding, "If households, businesses, and financial markets expect the Fed to settle for inflation running above 2%, they will probably be disappointed." He went on to say, "There is talk about AI's productivity, but when you look around, prices are too high," stressing, "We will achieve price stability in the United States." When the moderator asked whether he would manage prices regardless of what the president does, Warsh drew a line, saying, "We have been an independent central bank for a very long time, so you will not see any change in that regard." This was the first time Warsh has made public remarks outside the Fed since taking office in May.
Warsh declined to answer questions about the direction of interest rates. When the moderator posed a leading question about whether there was discussion of a rate hike in July, Warsh countered, "I will not break the principle of not providing forward guidance." At the June 16-17 Federal Open Market Committee (FOMC) regular meeting, the first he presided over, Warsh excluded forward guidance from the statement for the first time in 15 years and signaled his intention to abolish the dot plot, a table published quarterly that shows Fed officials' interest rate projections as dots.
"There is a lot of data we have received, and I take the views of my FOMC colleagues very seriously," Warsh said. "When we meet again in four weeks, I hope we can close the door of the meeting room and have an excellent internal discussion." At the previous FOMC meeting, the Fed held its benchmark interest rate at 3.50-3.75% while sharply reversing its year-end rate path on the dot plot from "one cut" to "one hike." The next FOMC meeting will be held on July 28-29.
Warsh also said he would soon reveal the personnel who will join the Fed task force (TF) he newly established. Last month, aiming to reform the Fed, Warsh created a task force covering five areas: Fed communication, the balance sheet, use of data sources, productivity and jobs, and the inflation framework. "It is no secret that from 2011, when I left my post as a Fed governor, until now, I have believed the Fed's balance sheet should be smaller," he said. "It will take more than 18 weeks to reduce its size." He added, "Around next week, I will announce who is joining the task force. I have tried to find the best talent, including economists, practitioners, and experienced people," and introduced, "It will also include people from outside the United States in order to see the situation clearly."
June Private Employment Falls Short of Expectations... A Burden for Rate Hikes
Meanwhile, U.S. employment data firm Automatic Data Processing (ADP) said Tuesday that private-sector employment in the United States rose by 98,000 in June from the previous month. This was down from May (122,000) and below the expert forecast compiled by Dow Jones (110,000).
By sector, education and health services led the overall employment gain, adding 48,000 jobs. Trade, transportation and public services (15,000) and financial activities (14,000) showed gains, while the natural resources and mining sector was the only one to decline, falling by 5,000. Leisure and hospitality, considered an indicator of economic demand, added just 2,000 jobs, continuing its sluggish trend this year.
"Search periods are getting longer, but there are also signs of labor supply constraints in certain industries," said Nela Richardson, ADP chief economist. "For now, the overall effect is showing up as a slowdown in job creation." The data is a burden for a Fed rate hike.
