Fed Commentary

At his second FOMC meeting as Fed Chair, Kevin Warsh attempted to walk a seemingly impossible tightrope: sending hawkish signals to curb the market’s inflation expectations without raising the federal funds rate; providing as little information as possible about the Fed’s reaction function without spooking markets; and trying to placate President Trump and members of his cabinet, who had been calling for lower interest rates even before Warsh was selected as the next Fed chair.

Kevin Warsh emerged from his first FOMC meeting as Fed Chair with his reputation as an inflation hawk firmly intact.  While offering few specifics and declining to provide his own rate and inflation projections in the Summary of Economic Projections (SEP), Warsh repeatedly emphasized the inflation side of the Fed’s dual mandate.

Federal Reserve chose to leave its target fed funds rate unchanged as was expected by both the market pricing and Fed’s December SEP (Statement of Economic Projections) release.

The FOMC cut the policy rate by 25bp at this meeting, in line with expectations.  The target range for the fed funds rate is now 3.5%–3.75%.  Cumulatively, the Fed has lowered the funds rate by 175bp since mid-September 2024.