Federal Reserve Chair Warsh Holds News Conference on Interest Rates

Good day. In the meeting just concluded, the FOMC decided to raise the target range for the federal funds rate by a quarter of a percentage point to 3.25% to 4% in support of the Federal Reserve's dual mandate. The committee is continuing its policy of maintaining ample reserves in the banking system. As noted in the policy statement released just a short while ago, economic activity is expanding at a solid pace. While uncertainty remains elevated, owing in part to geopolitical developments, domestic spending has been resilient. Productivity growth, strong. And capital investment is robust. Job gains have kept pace with the workforce, and the unemployment rate has changed little. But inflation remains elevated. Today's policy action will support a timelier return to the committee's 2% goal. This committee will deliver price stability. Now I'll get into some further detail. Our decision comes at a time when the American economy appears to be strengthening. New hiring, private sector earnings, business capital investment, each of these markers has improved in recent months and is pointing in a good direction. Credit has been robust, particularly for businesses. And as I said at the policy symposium in Jackson Hole, I would be hard pressed to describe broad financial conditions as restrictive. This view was widely shared by the committee. So we removed a dose of accommodation. Consider the geopolitical landscape of shocks and uncertainty and you begin to appreciate the resilience of the U.S. economy. Given that resilience, and the potential for even greater performance, an attitude of optimism is exactly what I heard inside the FOMC these last two days. One basic sign of strength is the state of America's labor markets. The jobless rate remains low at around 4.1%, and both job openings and weekly hours have been increasing. Unemployment claims on a four-week moving average are running at levels consistent with full employment. The employment side of the Fed's congressional remit is in good shape. Yet for more than five years, inflation has been running above target. So our predominant focus is on the price stability side of our mandate. The plain fact is that inflation is too high and has been for too long. This summer's inflation readings do not tell me that underlying trends have meaningfully improved. Based on the most recent C.P.I. and P.P.I. data, the 12-month change in total P.C.E. prices likely was around 3.6% in August. Core P.C.E. and C.P.I. prices running at about 3.2% and 2.4% respectively. Too many categories are still posting increases above 3% on both the 6 and 12-month basis. I note in Jackson Hole that overall commodity prices also bear watching. And over the intervening period, the prices of many of these key inputs have risen. Since my first FOMC meeting as Chairman in June, my colleagues and I have been unequivocal in our commitment to price stability. And to our 2% P.C.E. inflation objective. At our July meeting, we all agreed inflation remained too high, and we expressed our joint readiness to act as circumstances might require. And a good majority of my colleagues and I thought the wiser course then would be to await new information in the intervening period. Last month in Wyoming, I expressed my commitment to a monetary policy discipline, not to a decision. I define the standard for action. We must be confident that underlying inflation is moving to our objective, clearly, and at such speed. Today the FOMC decided that this standard has not been satisfied. The committee's unanimous vote shows our resolve to achieve price stability on a timelier basis. We aim to ensure that credit and financial conditions are consistent over time with our mandate, that relative price changes in some sectors of the economy do not broaden, that inflation compensation in market prices stays low, and that inflation expectations remain well anchored. This afternoon, you also received the Summary of Economic Projections that reflects the views of my colleagues on the committee, but as in June, I've not offered a projection of my own. Like in June, I said I would faithfully discharge the summary of their projections, so here goes. Real G.D.P. rises at 2.3% this year, 2.4% next year. Total P.C.E. inflation runs at 3.7% this year and falls to 2.3% next year. The unemployment rate holds steady at about 4.1%. The median participant judges the appropriate federal funds rate to be 4.1% at the end of this year and remain there next year. Inflation risks are to the upside, while labor risks are roughly balanced. In my meetings these last few weeks, in Jackson Hole, in Asheville at the G20 meeting, which the U.S. hosted, and at a central bank conference in Basel, it was evident that most advanced economies are facing price pressures. Their central banks are making their own judgments, consistent with their own remits. Our decision today reflects our best judgment in service of our remit. The Fed has a role in sustaining the economic progress happening in America right now. And the rising opportunities that come with it. Those who are least well off have the most to gain from a durable expansion, a solid labor market, and stable prices. We at the Fed are unwavering in our vital and straightforward purpose, full employment and price stability, and a thriving American economy that sets the standard for the world. And with that, I'll take a few of your questions.

It's a good question, Richard. We cannot affect any individual price, whether it be oil prices, whether it be foodstuff at the grocery store. But what we can do and will do is ensure that any change in relative prices don't broaden out, don't have second and third order effects in the economy. That's what we're tasked to do, and that's what we will do.

Chair Warsh, we get to more people. This won't surprise you, I'm not in the forward guidance business. The decision we made today was a sober decision, serious decision, responsible decision, one that we have been preparing for and thinking about in my 110 or 120 days here. You heard from other people in the dots effectively, what their forecasts are. I'm not going to prejudge any future decisions we make. You might have heard me saying Jackson Hole. I committed to a discipline instead of principles. I committed to look outside the window and see what I can observe. That's what I did in Jackson. That's what we did today.

I've said this before, and I'll repeat it. The Fed has an enormous amount of power. These are decisions we make. But getting the understanding right between financial markets and the Fed is a balance that I've long thought could be better struck. We made this decision today based on our assessment of the situation, based on our assessment of the trajectory for employment, based on our judgment on the strength of the economy. Sometimes the market tries to prejudge our outcomes. I'll observe market prices and see what they have to say, but today was our decision.

I've got nothing for you on a discussion with the President. But I will make that count as your question. On the American people, as I said, the least well off are the ones who have the most to gain from stable prices. The decision we made today was the right decision to deliver on the remit that Congress gave us to ensure stable prices. Moreover, I would say because of the underlying strength of the economy, because we are, as I mentioned, largely acting consistent with full employment, we can be focused on stable prices. Some months ago I said we'll deliver prices. Today's action is consistent with that.

As you might know, I'm not a data point-dependent guy, so I won't react one way or another to data that shows up on our doorstep. To your first question, the more important one, what transpired in the seven weeks since we last met. First, a good majority of my colleagues thought seven weeks is a good investment, a way to buy time, so we can make a wise decision. I'll highlight three things that have happened in that intervening period. One is I made a judgment seven weeks ago about the strength of the economy. There's been a pretty wide ranging set of data, including the labor markets that the economy has strengthened. You might have heard me say that in Jackson Hole a few weeks ago. It's a judgment that I have and the committee has. Second, inflation trends. I said in Jackson Hole, trends matter. I said in Jackson Hole, we need to look outside the window and interrogate reality. My judgment some weeks ago was the inflation summer trends weren't passing the test. I've seen very little information since then to make me reverse that decision, so I've stuck with it. The third thing that changed is geopolitics. There's no hiding from hot spots around the world, and our judgment about what is the most likely or least likely of the geopolitical situation has changed. All three of those things lend themselves to a firm, unanimous decision today.

I described previously I found it difficult to describe financial conditions. I think I said I was hard pressed. What I heard around the table in the last couple of days is my colleagues were hard-pressed to describe it that way too. We removed a dose of accommodation so it would be more consistent with our ultimate objectives. That was the decision. That was our judgment. And we'll continue to evaluate that perspective.