Less Fed talk, more rate risk

US Federal Reserve (Fed) chairman Kevin Warsh appears to be stamping his mark five months after taking office.

As anticipated, the US central bank held interest rates steady at 3.75% to 4% at Warsh’s fourth Federal Opening Market Committee meeting this week, ahead of the US midterm elections on Nov 4.

While maintaining that inflation remains above its 2% target due to the energy shock, Warsh said the Fed intends to look at incoming data before acting again to ensure price stability.

Markets continue to price in an 87% probability of a December rate hike.

Warsh also announced changes to the Fed’s meeting schedule.

The central bank will continue to hold eight meetings a year, but starting in 2027, one meeting will focus on broader monetary policy strategy rather than interest rate decisions.

In 2028, two meetings will be dedicated to strategy, leaving six for interest rate decisions.

This move appears to support Warsh’s move to distance the Fed from providing forward guidance outside of a crisis.

There will be no policy decisions made at the proposed monetary policy strategy meetings.

Analysts view the move as a clever way to effectively reduce the number of rate-setting meetings from the current eight a year without actually reducing the total number of meetings.

Warsh’s efforts to distance the Fed from providing forward guidance have, however, already seen markets price in a premium on yields in the past few months.

The big question now is ­whether fewer meetings ­dedicated to discussing monetary policy will also mean a potentially less hawkish stance going forward.