Fed Chair Warsh Silent on Interest Rates, Markets Bet on Freeze
Translated & summarized from Bizportal by baba
Federal Reserve Chair Kevin Warsh remained non-committal on future interest rate hikes during a public appearance, leading markets to bet on a freeze at the upcoming meeting. While Warsh reiterated the Fed's data-dependent approach, recent inflation data has been higher than expected. Markets currently anticipate a pause in October and a potential quarter-point hike in December, though Warsh's own stance on forecasts remains unclear. Changes in U.S. interest rate expectations also impact Israeli savings and corporate borrowing costs.
The story in 5 lines · by baba
- Fed Chair Kevin Warsh offered no hints on future interest rate decisions, leaving markets uncertain.
- Markets are largely betting on the Federal Reserve holding interest rates steady at its October meeting.
- Recent U.S. inflation data has shown persistent price increases, complicating the Fed's decision-making.
- Warsh reiterated the Fed's data-dependent approach, stating decisions are made meeting by meeting.
- U.S. interest rate expectations significantly influence Israeli savings and corporate borrowing costs.
Federal Reserve Chair Kevin Warsh declined on Friday to signal whether the U.S. central bank will raise interest rates at its upcoming meeting, scheduled to conclude in about ten days. Speaking at an annual IMF and World Bank conference in Bangkok alongside IMF Managing Director Kristalina Georgieva, Warsh reiterated the Fed's stance that it does not pre-announce its decisions and that each meeting is determined by the data available at the time. He acknowledged that those seeking a clear signal might be disappointed.
Warsh, who previously served on the Fed's board from 2006 to 2011 and returned as Chair in May 2026, also commented on the global trend of interest rate hikes. He noted that while each central bank acts according to its mandate, the result is a synchronized tightening of monetary policy worldwide, with no country escaping the costs of others' fight against inflation. The backdrop includes soaring energy prices due to the war with Iran, increased demand from massive investments in artificial intelligence, and rising financing costs for governments and companies.
While optimistic about AI, Warsh cautioned about potential disruptions and the unclear near-term impact on employment. Following his remarks, U.S. stock index futures saw a slight increase, and Treasury yields remained relatively stable. In the Fed funds rate futures market, the probability of a rate hike at the end of the month is estimated at only about 20%, with most traders anticipating a quarter-point increase in December. The Fed last raised rates in September to a range of 3.75%-4%, its first hike since 2023, and the median forecast at the time suggested one more move by year-end.
This pricing reflects market expectations of a pause in October followed by another hike in December. Recent comments from Vice Chair Philip Jefferson and New York Fed President John Williams have been interpreted as supportive of this outlook, with Williams suggesting no further hikes might be needed next year. However, the market's interpretation of these statements, especially since Warsh took over from Jerome Powell, is less certain. Warsh himself has distanced himself from such forecasts, clarifying that committee projections do not reflect his personal views and emphasizing the Fed's 2% inflation target as rigid.
Recent U.S. economic data has shown persistent inflation, with the Consumer Price Index rising 0.6% month-over-month in September and 3.7% annually. The Producer Price Index saw its fastest annual increase since 2022, jumping 6.3%. While core inflation is more moderate, the Personal Consumption Expenditures price index, the Fed's preferred measure, indicates core inflation around 3%, significantly above the target.
The yield on the 10-year U.S. Treasury note fell to 5.09% by Friday, down from 5.24% a week prior. The dollar index weakened about 0.4% over the week, and the S&P 500 index lost around 2%. In Israel, changes in U.S. interest rate expectations quickly affect long-term savings held in U.S. assets, and also increase borrowing costs for Israeli companies issuing dollar bonds in New York. The Fed's next decision will be announced at the end of the month, with updated economic forecasts due in December.