Fed vs inflation

Fed leaves interest rates unchanged – three members wanted to raise

As expected, the US central bank, the Federal Reserve, leaves the key interest rate unchanged in the range of 3.50 to 3.75 percent.

Three members deviated from the decision and wanted to raise the interest rate. Nine wanted to leave the interest rate unchanged.

"Inflation remains at a high level in relation to the committee's target of two percent," the Fed wrote in a press release.

According to CME Group, market participants priced in a 64 percent probability that the interest rate would be left unchanged.

The uncertainty that still existed in the market can be attributed entirely to the new Fed chief Kevin Warsh, who has avoided the previous practice of giving signals about future interest rate developments.

Warsh has said he is determined to bring inflation down, but has not indicated whether he supports raising interest rates to do so.

– Regardless of what you think they will do, and what they ultimately will do, this is a prime example of the fact that we are in a new era, Stephen Stanley, chief US economist at Santander US Capital Markets, told Bloomberg ahead of the rate decision. 

Warsh: “This central bank will not falter”

Fed Chairman Kevin Warsh emphasized at the press conference after today’s rate decision, where the rate was left unchanged, that there is full focus on bringing inflation down. This is reported by several media outlets.

– There is no flexible inflation target, there is no flexible implicit target – not on the watch of this committee, Fed Chairman Kevin Warsh said according to Bloomberg.

When asked what the discussions were like when three of the twelve members voted for a rate hike, Warsh replied that he “asked for a family fight and he got one.”

The market’s reaction to the news was that Wall Street, which had been trading down all day, lifted slightly. At the same time, interest rates fell and the dollar and the price of gold rose. This after expectations of a rate hike in September had receded.