Nick Timiraos, the journalist often described as the Fed’s mouthpiece, says Chair Warsh’s latest remarks eased some concerns about his inflation-fighting strategy while setting up a bigger test in three weeks. A rate increase now could anger the White House weeks before the midterm elections; staying put could revive the doubts the speech was meant to calm.
Warsh pointed to two reasons the Fed might raise rates next month. He struggles to call current financial conditions restrictive, and the better summer inflation readings have not convinced him the underlying trend is improving. Before Friday, the Fed’s default was to hold unless data justified action.
Former Fed Vice Chair Kohn says Warsh flipped that logic. “He has changed the prior assumption. Now it becomes: unless the data show no need, they will raise rates.” That makes the September meeting and the August CPI report on September 11 the deciding factors. If the data show no action is needed, the Fed should not hike. If the data come in firm, the case that inflation is returning to the Fed’s 2% target would weaken.
Nick Timiraos, the journalist known as the Fed’s mouthpiece, wrote that Chair Warsh’s latest speech eased worries over his inflation-fighting approach — and left the central bank facing a larger test three weeks from now.
If the Fed raises rates, it could anger the White House just weeks before the midterm elections. If it holds, the doubts that Warsh tried to put to rest could return.
Timiraos highlighted two parts of Friday’s remarks as signs that a move could come next month. Warsh found it hard to describe current financial conditions as restrictive, and stronger summer inflation data had not convinced him the underlying trend is improving. Before Friday, the Fed’s default was to hold unless the numbers were strong enough to justify action.
Former Fed Vice Chair Kohn said Warsh had reversed that logic. “He has changed the prior assumption,” Kohn said. “Now it becomes that they will raise unless the data show there’s no need.” The decision will therefore come down to how conditions evolve before the September meeting, especially the August CPI report due September 11. If the data show no action is needed, the Fed should not hike, Kohn said. If they are firm, that could undercut the argument that inflation is heading back toward the Fed’s 2% target.
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