Federal Reserve chair Kevin Warsh closed the Federal Reserve’s week in Bangkok on Friday without giving markets the signal many had positioned for. Speaking with IMF managing director Kristalina Georgieva at the annual meetings, Warsh said he does not prejudge meetings and does not believe in saying now what he might do at the meetings remaining this year, Reuters reported.
The substance around the refusal was hawkish in framing even if neutral on timing. Warsh described inflation as a common challenge across the central banks gathered in Bangkok, said policy had tightened in most places at the same time so that there are no free riders, and pointed to an investment surge led by artificial intelligence and broadening to other sectors as a near-term demand shock putting upward pressure on prices. On the United States, he noted the Fed had made clear it would deliver price stability and had removed a dose of accommodation about a month ago, a reference to the September rate hike, and he expressed surprise at how well the US and other economies are holding up under energy shocks and tighter policy.
The silence lands in a specific pricing context. September consumer inflation printed at 3.7 percent on the year and producer prices then rose 1.3 percent on the month, both covered in this beat on Wednesday and Thursday, yet overnight notes put the odds of an October hike back below one in three, down from nearly a coin flip on Wednesday, while a December move remains close to fully priced. Reuters noted that Warsh’s colleagues have been less reticent, with nearly all saying in recent weeks that more tightening is probably needed but that they want more data, a combination markets read as pointing to December rather than October.
Warsh’s remarks were his last scheduled public appearance before the blackout that precedes the October 27 to 28 FOMC meeting. The committee therefore goes quiet with its chair uncommitted in public, its data running hot, and its market pricing split between an October meeting treated as live but unlikely and a December meeting treated as close to decided.