Fed vs. inflation

Surprised by hawkish Warsh: “A serious warning signal”

The hawkish tone from the new Fed chief Kevin Warsh came as a surprise. That’s what analysts say after the first interest rate announcement under Warsh’s leadership.

JP Morgan’s Bob Michele believes that the central bank now sees greater inflation risks than Wall Street has expected.

– Half of the committee expects interest rate hikes this year, which is a serious warning signal to the market, he says.

Former Fed chief Richard Clarida, now an economic advisor at Pimco, was asked if he saw any dovish signals from the central bank.

– Not at first glance, he says.

Michele also believes that Warsh may disappoint President Donald Trump. According to him, the strong economy makes interest rate cuts increasingly unlikely.

Fed drops signal of cut – stock markets fall

The US central bank is no longer signaling any interest rate cut this year. Instead, the central bank is opening up the possibility that the next step could be a hike. This is evident from the Fed's so-called "dot plot" where the heads present their interest rate forecasts.

Nine out of 18 are tracking at least one hike this year, while eight expect an unchanged interest rate and one is tracking a cut.

At the same time, the forecast from one of the 19 governors was missing. Several Fed analysts suspect that it was the new head Kevin Warsh who abstained. Warsh has previously criticized the forecast tool and other forward-looking guidance from the central bank, writes CNBC.

US stock markets give the thumbs down to the turnaround and turn around 20 o'clock.

Fed leaves policy rate unchanged in Warsh's debut

As expected, the US central bank leaves the policy rate unchanged within the range of 3.50–3.75 percent. The decision was unanimous and the statement is the first statement from new Fed President Kevin Warsh.

Despite increased uncertainty, partly in the wake of the Middle East conflict, economic activity is increasing, the Fed says.

"Productivity growth and capital investment are strong. Employment continues to grow in line with the labor force, and unemployment has changed very little," the central bank writes.

At the same time, the Fed pointed out that inflation is still above the 2 percent target, with supply disruptions in the energy sector a contributing factor.

Trump on the interest rate decision: "It's okay"

Trump has argued for months that interest rates are too high and has demanded sharp interest rate cuts from Kevin Warsh's representative Jerome Powell.

The president is in France for the G7 meeting when he is asked about the Fed's decision to leave interest rates unchanged:

- It's okay. It must be that way, he tells Reuters.

When asked about a possible interest rate increase later this year, Trump replied:

- It could happen ... It's hard to believe. It's just holding the country back and it's so unusual. But we have a very good person there now, so I'll let myself be guided by what he wants.