Chairman Kevin Warsh delivers remarks following the Fed's decision to leave rates unchanged

[00:00:00] Good day. My second FOMC committee meeting as chairman has come quickly. It's [00:00:08] probably too early to call it a streak, but our discussions again were collegial [00:00:13] and constructive. I'm truly lucky to work with colleagues so capable and [00:00:19] mission-focused and so determined, like I am, to sharpen the performance of the [00:00:25] Federal Reserve. Today, as you know, our committee decided to vote by a nine to [00:00:30] three vote to maintain the target range for the federal funds rate at three and [00:00:34] one-half to three and three-quarters percent. The committee is continuing its [00:00:38] policy of making ample reserves in the banking system. The economy is showing [00:00:44] impressive resilience. Even with recent shocks, the trends are positive and reveal [00:00:51] solid growth. Job gains have kept pace with the workforce and the unemployment [00:00:56] rate has changed little. Inflation remains elevated relative to the committee's two [00:01:02] percent goal. The committee remains resolute. You've heard this before, but we [00:01:08] will deliver price stability. As before, the policy statement conveys just the facts. [00:01:14] It's steering clear of forecasting, a choice we consider especially prudent at [00:01:21] these uncertain times. Uncertainty, however, does not mean a lack of clarity. For some [00:01:28] households, businesses, and market professionals, five years of high inflation have [00:01:34] left a mistaken impression that's hard to shake, that the Fed's implicit inflation [00:01:40] target was somehow above two percent. Let me reiterate, there is no soft inflation [00:01:47] target. There is no soft implicit target, not on this committee's watch. There's only a [00:01:54] target and it's two percent. Not one of my FOMC colleagues is under any illusion. We've [00:02:03] begun a new chapter and we understand that the five plus years of inflation above target [00:02:08] cannot be cured in nine weeks or by a single month of modest price decreases. This Fed will [00:02:18] not waver. Our credibility rests on performing our duties and delivering on our [00:02:25] responsibilities. Americans are right to expect that because our nation's prosperity depends [00:02:32] on it. To the regulars here in the press room, today's assessment might sound familiar, yet there [00:02:39] was nothing inertial about our discussions, our policy, or our strategy. Two economic developments [00:02:47] are worth highlighting. The first is a very notable change since our last meeting 42 days ago. Nominal [00:02:55] and real yields are materially higher across the Treasury curve. In fact, some of the increases [00:03:03] in market interest rates between FOMC meetings are among the most significant in the last two [00:03:10] weeks, ranking around the top decile or so. But if the committee didn't change its policy rate, what [00:03:17] happened? In the intermeeting period, market attention centered on real data and real economic [00:03:25] developments. Prices reacted in real time to incoming information. And the reduction in forward guidance [00:03:34] may have been a factor. Market participants are learning to play the ball, not the referee. [00:03:41] And market prices will continue to respond in the direction and magnitude they see fit. [00:03:48] This is, in my view, a change for the better. And we're just getting started. After all, the [00:03:54] central bank need not always and everywhere be the center of attention. I understand the desire [00:04:01] for rolling forecasts and commentary from this committee. But for our part, we need to observe [00:04:08] market reaction to developments, direct and unfiltered. I want to stress, of course, that decisions [00:04:16] by this committee matter a great deal. And where necessary and appropriate, we will not hesitate [00:04:24] to act. A second economic development is one that I noted at the Congressional oversight hearings [00:04:31] this month. But it's worth repeating. The most striking feature of the economy is the strong [00:04:38] growth of business investment. The surge in high tech capex has been remarkable. But that does [00:04:44] not necessarily make the Fed's role any easier. In the AI-related category of high-tech equipment [00:04:52] and software, the most recent data shows four-quarter growth rates of nearly 20 percent. This is [00:05:01] helping to sustain the healthy momentum of manufacturing output. More generally, capex is preparing the [00:05:08] ground for future growth. Nonetheless, the precise timing and magnitude of effects on the supply side [00:05:16] remain hard to predict. FOMC meetings produce policy decisions. But just as important is candid discussion [00:05:27] of the big things that matter most. That, too, is a priority in this new chapter at the Fed. [00:05:35] In our meeting, vigorous discussion centered on four questions, which I will enumerate. First, we talked [00:05:43] a lot about the implications of the past five years of high inflation on the current policy conjuncture. [00:05:50] To echo an old phrase, has the past really passed? Second, my colleagues and I considered the economic [00:06:01] shocks of recent years, strained supply chains arising from the pandemic, military conflicts, energy supply [00:06:10] disruptions, substantial increases in tariff rates, and yes, the surge in AI-related investment. [00:06:19] These differ in their sources. Do they also differ in their effects [00:06:23] on output and employment? Third, we took up the related question of price increases arising from [00:06:31] shocks. The business capex boom, for example, is driving up prices of memory and logic chips [00:06:37] and associated AI infrastructure. Do these changes indicate a broader inflationary dynamic, [00:06:44] or do we just focus on them because they are under the bright streetlight? Finally, we discuss monetary [00:06:53] policy tools and strategies for achieving stable prices. If, as the Fed has long held, interest rate [00:07:01] policy should be its primary monetary policy instrument, how much accommodation are we getting from the balance sheet? [00:07:09] In all of this, our work is advancing at the Fed. We're asking the right questions. And in this [00:07:18] consequential time, we know how very much depends on getting the right answers. Of course, you've all arrived [00:07:26] with questions of your own, so let's turn to them now.