Fed Holds Rates Steady Despite Lack of Progress on Inflation
Kevin M. Warsh, the chairman of the Federal Reserve, said an “information-rich” period before the central bank’s gathering in December will help officials determine next steps for policy.
The Federal Reserve held rates steady on Wednesday as expected. The two dissenting officials in favor of a quarter-point increase included Lisa D. Cook, a governor who is fighting to keep her job amid President Trump’s campaign to fire her. Kevin M. Warsh, the Fed’s chairman, leaned into the idea that the central bank had the flexibility to accumulate more information to make the right determination about rates because expectations about future inflation do not point to a lack of confidence in the Fed’s ability to eventually achieve the 2 percent target and because there are no signs the economy is overheating.
Mr. Warsh’s biggest announcement of the day pertained to how often the Fed will vote on interest rates in the coming years, an idea that The New York Times first reported the chairman raised in July. In 2027, the Fed plans to hold seven policy meetings, with one dedicated to discussing “broad monetary policy strategy.” In 2028, there will be six policy meetings and two on strategy.
Mr. Warsh repeatedly mentioned a shift in financial conditions since September, which he suggested helped the Fed in the pursuit of its inflation goal on the margins. Credit conditions have “tightened for some businesses and households, much as we would expect,” he said. “Market participants are becoming somewhat more discerning in their capital allocations, and while overall financial conditions are tighter, I’m unwilling and unable to call them tight. But broadly, these developments go in the direction of achieving a longer, more durable period of economic growth and price stability.”
The Fed’s meeting is days before the midterm elections, but Mr. Warsh emphasized that politics played no role in Wednesday’s decision to hold rates steady. But the political backdrop has been hard to ignore, especially because of Mr. Trump’s repeated attacks on the Fed for not complying with his demands for lower rates. The White House has demanded that Ms. Cook attend an in-person hearing to defend herself against allegations that she committed mortgage fraud, something Mr. Trump has cited as a reason to fire her.
The S&P 500 ended the day 0.3 percent higher, after a volatile period of trading while Warsh was speaking. Easier monetary policy, with rates expectations falling, is usually bullish for the stock market.
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Starting next year, the Federal Reserve will reduce the number of meetings at which it sets interest rates, Kevin M. Warsh, the central bank’s chairman, announced Wednesday.
The Fed’s 12-member policy committee currently holds eight regularly scheduled meetings a year, a cadence it has maintained since the 1980s. Mr. Warsh, who took over as the Fed’s leader in May, raised the idea of reducing the number of meetings at the committee’s closed-door session in July, a discussion first reported by The New York Times and later confirmed in the publicly released minutes of the meeting.
In a news conference on Wednesday, Mr. Warsh said the Fed would meet eight times next year as usual. But only seven of those meetings will include a vote on interest rates. The eighth “will focus exclusively on broad monetary policy strategy,” he said.
In 2028, the Fed expects to hold just six rate-setting meetings, with two meetings dedicated to discussions of longer-run strategy, Mr. Warsh said.
“Getting policy right involves assessing near-term developments at timely, regular and information rich intervals,” Mr. Warsh said, “but it’s equally important we reserve time and space as an intellectually diverse group for strategic deliberations, for thinking anew about big questions, looking out over longer time horizons.”
Some economists have criticized the idea of holding fewer meetings, arguing it could make it harder for the Fed to respond quickly to changes in inflation and the labor market. The move also fits a pattern during the early months of Mr. Warsh’s chairmanship toward providing less information to investors and the public, reversing a decades-long trend toward greater openness.
Other economists, however, have defended the idea. They argue that providing more time between meetings will make it easier for policymakers to identify meaningful shifts in economic conditions. And they note that the Fed can hold emergency meetings if necessary, as it has done numerous times in the past.
Investor expectations for interest rate increases have also fallen, further pointing to doubt about the Fed’s resolve to keep raising rates. Robert Dishner, a senior portfolio manager at Neuberger, said that while a December rate increase remains on the table, “the 2027 hikes that the market has priced in may require further consideration.”
There is an interesting dynamic in the market as investors digest Warsh’s comments. The short-dated, two-year Treasury yield has fallen to 4.71 percent, while the 10-year Treasury yield has risen to 5.04 percent. The move in the 10-year was driven by a rise in the breakeven inflation rate, which is a market measure of investors’ inflation expectations. “That to me is literally the market saying that you talk tough on inflation but you are not delivering on it,” said George Goncalves, head of U.S. macro strategy at MUFG Securities.
The biggest question coming into the news conference was why the Fed didn’t raise rates given the persistence of inflation. I’m not sure we ever got an answer, despite the best efforts of reporters to pin Warsh down.
The Federal Reserve held interest rates steady on Wednesday, despite no recent progress on getting inflation down to the central bank’s 2 percent target.
Officials voted 10-2 to keep rates at the range of 3.75 percent to 4 percent. That range was reached in September after policymakers decided unanimously to raise rates for the first time since 2023.
Lisa D. Cook, a Fed governor who President Trump has tried to fire, issued her first-ever dissent on the Fed’s monetary policy settings in favor of a quarter-point increase on Wednesday. She was joined by Beth M. Hammack, president of the Federal Reserve Bank of Cleveland, who has dissented repeatedly this year.
In a statement accompanying the rate decision , the Fed conveyed that it had more work to do to quell inflation, which it described as “elevated.”
At a news conference after the decision, Kevin M. Warsh, the Fed chairman, started with an upbeat assessment of the economy, but stressed that inflation was still too high.
He also said the central bank would cut the number of meetings at which it votes on interest rates. Mr. Warsh said the Fed would still meet eight times in 2027, but one of those meetings would focus “exclusively on broad monetary policy strategy” and would not include a vote on interest rates. Starting in 2028, the Fed plans to dedicate two meetings to such broader strategy.
The Fed gathered days before midterm elections that will decide whether Republicans retain control of Congress and how much scope President Trump will have to enact his agenda in the second half of his term. Affordability issues are central for voters after nearly six years in which inflation has overshot the Fed’s target.
“Politics played no role in the decision,” Mr. Warsh said when asked about the midterms.
Mr. Warsh, who took over as chairman of the Fed in May, has made taming inflation the top priority of his four-year term.
Since officials at the Fed met in September, inflation data has been far from reassuring. Price pressures appear to be broadening out after shocks caused by Mr. Trump’s tariffs and the U.S.-Israel war with Iran. Energy prices have shot higher, threatening to spill over into other goods and services.
The economy has continued to grow at a solid pace despite these headwinds, fueled by an investment boom stemming from companies scrambling to expand their artificial intelligence capabilities. Wage gains have failed to keep up with rising prices, however, meaning Americans are earning less for an hour of work.
U.S. government borrowing costs have risen sharply, making not only mortgages and other consumer loans more expensive, but also financing for companies. Certain A.I. companies, which have issued a significant amount of debt to fund their expansion plans, appear particularly exposed.
As a result, financial conditions, which track the availability of credit across the economy, appear slightly less accommodative. To what extent this will help the Fed tame inflation depends in large part on whether these conditions tighten further.
Ms. Hammack’s dissent on Wednesday was widely expected given her views that the Fed’s policy settings are not restraining the economy. Ms. Cook’s dissent was notable in that she is locked in a legal battle with Mr. Trump, who has sought to pressure the Fed into lowering rates. Ms. Cook became a target in the summer of 2025 when the president seized on unproven allegations that she committed mortgage fraud before joining the central bank.
Mr. Trump renewed that effort after the Supreme Court ruled against him on the matter earlier this year. The White House started its own investigation into Ms. Cook and summoned her in for an in-person hearing.
Asked if the Fed would participate in a White House hearing on Lisa Cook, which could result in her firing, Warsh simply replied: “Not to my knowledge.”
Warsh says the economy is strong, but not necessarily too hot in a way that is leading to inflation. “Is the economy running too hot? Is the economy too strong? That isn’t the judgment of most of my colleagues,” he says. He argues that productivity growth is picking up, which allows the economy to grow faster without causing inflation.
Warsh reiterated his comments that he “does not believe” in forward guidance. However, he was careful to include a caveat for when the economy is in crisis. Recalling his experience during the 2008 financial crisis, he said that in those moments, guidance is needed.
Warsh is asked about the role that the A.I. investment boom is playing in driving both inflation and economic growth. He says that A.I. is an important factor in the strong economy, but not the only one. And he pushes back against the idea that A.I. investments are insensitive to interest rates , noting that corporate bond investors appear to be distinguishing between A.I. companies that they view as safe and those that could be riskier. In other words, he still believes interest rates will do the job of bringing inflation under control.
“Politics played no role in the decision,” Warsh said when asked about the midterms, which are just days away.
Warsh says that while surveys show that consumers are expecting faster inflation in the near-term, there is relatively little evidence that they are expecting faster inflation over the longer run. That’s generally true, but there have been some hints that consumers are expecting inflation to be higher in the future as well. Economists and policymakers pay close attention to such measures of expectations because if consumers and businesses start to expect inflation to endure, it can make it harder for the Fed to bring it under control.
Warsh is asked about the task forces that he convened to look at a wide range of issues that he believes are central to how the Fed conducts policy. They include groups looking at how the Fed communicates as well as how it models inflation. He said “some, but not all” groups will have recommendations by year-end, the deadline that Warsh initially set.
Reducing the number of meetings is the most major change that Warsh so far has announced at the central bank. The reason that Warsh most often cites is that it will allow for more data to accumulate between votes on interest rates. One potential risk is that it might leave the Fed less nimble to act if the economic backdrop rapidly changes. The Fed can hold emergency meetings, but they only tend to do that during periods of crisis.
Yields have come back down to 5 percent where they started the day. It appeared investors were responding to Warsh’s comments on inflation expectations remaining anchored, despite hotter inflation data in recent weeks. It’s obviously hard to know the precise driver but what is clear is that markets are twitchy, moving quickly higher and lower since Warsh started speaking.
Warsh says the committee is “going to be able to figure out what’s the appropriate protocol” and that he is “encouraged by the progress we’ve made in a short period of time.”
