Author: Wall Street CN
On Wednesday, June 17, Eastern Time, the Federal Reserve announced after the FOMC meeting that it would keep the target range for the federal funds rate unchanged at 3.50% to 3.75%.
The post-meeting statement emphasized the commitment to price stability by reducing high inflation, and the dot plot reflected the strong hawkish inclination of Fed policymakers.
This was the first FOMC meeting with Warsh serving as Fed Chair. At the press conference, Warsh stated that the Committee is clearly and unanimously committed to achieving price stability and the 2% inflation target.
Judging from the rate decision, his first act in the new role was to significantly trim the resolution, including the rate guidance. At the same time, pushing reforms, this statement removed the long-standing "forward guidance," announcing the immediate formation of five special task forces (on communication mechanisms, the balance sheet, use of data sources, productivity and employment, and the Fed's inflation framework) to propose improvements by year-end.
The new statement shows that regarding the dual mandate of employment and inflation, the Fed only emphasized the inflation aspect. Its assessment of inflation and other economic areas remained consistent with before, reiterating that inflation remains high and noting that the Middle East conflict brings high uncertainty to the economy. Compared to the statement, the dot plot released after the meeting reflected a more pronounced hawkish tilt: half of the Fed policymakers providing rate forecasts projected at least one rate hike this year.
Notably, while 19 individuals were supposed to provide rate forecasts at this FOMC meeting, the dot plot showed only 18 did so. As Fed Chair, Warsh broke with convention and explicitly refused to submit his own Summary of Economic Projections (SEP) and dot plot.
His explanation for this was: "I reviewed the dot plot, and when I saw the submissions, I noticed all were written in pencil, the kind with big erasers... To me, this is not helpful for policy implementation."
Given Warsh's opposition to providing rate guidance, this led to external speculation that this might be the last time the Fed provides a dot plot.
Nick Timiraos, the veteran Fed reporter known as the "New Fed Wire," commented that this is a "very hawkish" dot plot. He pointed out in his article's headline that the Fed held rates steady, but more officials expect the next move to be a hike.
The strong hawkish tilt caught the market off guard. All three major U.S. stock indices closed lower on Wednesday: the S&P 500 fell about 1.2%, the Nasdaq dropped about 1.3%, and the Dow declined about 1%. The VIX fear index rose back above 18. The interest-rate-sensitive 2-year Treasury yield rose 16 basis points, and the 10-year yield climbed over 8 basis points. The U.S. Dollar Index surged 0.86%, hitting a two-month high.
Spot gold prices briefly fell over 2.5%, erasing all gains accumulated this week from peace talk expectations.
Half of Policymakers Expect Rate Hike This Year; Chair Unprecedentedly "Refuses" to Submit Dot Plot
The median rate forecast released by Fed officials after Wednesday's meeting showed they raised rate expectations for this year, next year, and the year after: the federal funds rate at end-2026 is 3.8%, up from the 3.4% forecast in March; end-2027 is 3.6%; end-2028 is 3.4%, while March forecasts were all 3.1%. The longer-run federal funds rate is 3.1%, unchanged from March. Unlike the last dot plot release in March, this dot plot clearly no longer hints at any easing bias. Among the 18 Fed officials providing rate forecasts, a total of nine projected at least one 25-basis-point rate hike by year-end. In other words, half of the forecasting officials expect at least one rate hike this year. The previous median rate forecast indicated the Fed generally expected one rate cut this year. Meanwhile, the camp supporting rate cuts this year shrank dramatically in the dot plot, with only one official projecting further cuts this year.
Rate Decision Receives First Unanimous Vote in Nine Months, Rate Guidance Removed
Compared to previous meetings, the post-meeting statement was completely rewritten from start to finish.
In terms of length, compared to the last statement in late April, the word count of this statement was reduced by nearly two-thirds. At the same time, the narrative structure was changed, removing the previously reiterated so-called rate guidance. It no longer stated that the FOMC would assess the stance of monetary policy based on the implications of incoming data for the economic outlook, deleting the following sentence:
"The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals."
The first paragraph of the statement no longer introduces recent economic conditions like employment and inflation but gets straight to the point, announcing that all 12 voting FOMC members unanimously supported the decision to keep rates unchanged. This was the first time in nearly nine months that a Fed rate decision received unanimous support from FOMC voting members, partly due to the departure of the most dovish Fed Governor, Stephen Miran, in May this year.
No Longer Reiterates Close Monitoring of Risks to Both Employment and Inflation
The second paragraph of this statement writes that, to support the Fed's dual mandate of maximum employment and price stability, the FOMC decided to maintain the policy rate unchanged.
Regarding the dual mandate, this statement no longer reiterates that the FOMC is committed to achieving maximum employment and 2% inflation over the longer run, nor does it reiterate that the FOMC is closely monitoring risks to both sides of its mandate. Instead, after describing the economic situation, at the very end of the text, it adds the phrase "The Committee will be committed to achieving price stability," thereby emphasizing the inflation side of the mandate.
Although the length was drastically reduced, the economic assessment in this statement was largely similar to the previous one, remaining basically unchanged, retaining the impact of the Middle East conflict, reiterating that inflation remains elevated, and that the unemployment rate has changed little.
Lowers This Year's GDP Growth Forecast, Raises Inflation Forecast
The economic projections released after the meeting show that Fed officials expect economic growth to slow further this year, the unemployment situation to improve slightly, but inflation to rise significantly.
Fed officials lowered their GDP growth forecasts for this year and the year after, and lowered the unemployment rate forecast for this year. Compared to the inflation outlook released last March, they continued to raise PCE and core PCE inflation forecasts for this year and next year. The difference this time is they also raised the core PCE inflation forecast for the year after.
The PCE inflation forecast for this year saw the largest relative increase, rising 90 basis points to 3.6%, with the core PCE inflation forecast for this year at 3.3%.
Attached is the full translated Q&A from Warsh's debut:
Warsh
Good afternoon, everyone. It is a privilege, a true privilege, to return to the Federal Reserve and assume this responsibility at such a consequential moment. I have been particularly heartened by the warm welcome from old friends and new colleagues. I have also listened carefully to my FOMC colleagues, absorbing many new ideas, new thinking, and a genuine willingness to move the Federal Reserve forward.
Warsh
This week's FOMC meeting fully embodied the best traditions of the Federal Reserve: rigorous debate, an open mind, commitment to the mission, and a sense of responsibility and accountability for performance. In this business, it all comes down to one thing: getting monetary policy right, or as close to right as possible—that is our North Star.
Warsh
My colleagues and I are here to fulfill our statutory mandate, as you have heard us say before: price stability and maximum employment. These goals guided the work throughout the meeting we just concluded.
Warsh
As you saw a few minutes ago, the Committee decided to maintain the target range for the federal funds rate at 3.5 to 3.75 percent. To support the Fed's dual mandate, the Committee also reaffirmed its policy of maintaining ample reserves in the banking system. Although uncertainty has risen due to factors including the Middle East conflict, economic activity continues to expand at a solid pace. Productivity growth and capital investment are both strong, job gains have kept pace with labor force growth, and the unemployment rate has changed little. We recognize that inflation has been running well above the Fed's longer-run stated goal of 2 percent. This has been the case for over five years. Persistently high prices are a burden on the American people, but past experience need not be repeated.
Warsh
I am pleased to report that the members of the FOMC are clear and unanimous in their view that this Committee will achieve price stability. In any institution, a change in leadership is a natural and timely occasion to reaffirm its mission, review current practices, and consider whether those practices best serve our objectives. My Federal Reserve colleagues and I will work closely together to explore what changes might help improve the implementation of monetary policy.
Warsh
On that note, you may have noticed a difference in today's policy statement. It is shorter, more concise, and omits some old phrasing. The statement simply presents the facts to you as best we can judge them. So-called "forward guidance" is also no longer included, as we unanimously agreed it was not suitable for the current policy mix.
Warsh
This afternoon, you will also receive the customary Summary of Economic Projections, or SEP. It is the Committee's standard practice for participants to submit these projections, and I encouraged my colleagues to continue doing so. However, I myself did not provide any projections, consistent with my long-held views on the SEP, at least in its current structure. Regarding the median forecasts, real GDP growth is 2.2 percent this year and 2.3 percent next year; headline PCE inflation is 3.6 percent this year and 2.3 percent next year; the unemployment rate is around 4.3 percent. The median federal funds rate projected by participants is 3.8 percent at the end of this year and 3.6 percent at the end of next year.
Warsh
Now, allow me to say a few words about a key initiative we are announcing today. I will be appointing a special task force in each of five areas critical to the broad implementation of monetary policy. First, the Fed's communications; second, the Fed's balance sheet; third, our use of and reliance on existing data sources; fourth, productivity and employment in a time of transition; and finally, the Fed's inflation framework.
Warsh
These topics are timely, important, and, in my view, warrant a fresh look. My colleagues and I have had vigorous and purposeful discussions about them over the past few days. For each of these separate working groups, I am recruiting some of the finest minds, from both inside and outside the economics profession. They will be supported by subject-matter experts from our excellent Federal Reserve staff and given a clear mandate.
Warsh
To start from first principles, ask hard questions, scrutinize current practices, consider alternatives, and ultimately propose recommendations for next steps to policymakers. Since last summer, my colleagues have discussed possible ways to improve the form and function of Fed communications. This new working group will build on that effort, and I expect it to propose some thoughtful changes, including recommendations regarding the SEP I just mentioned. The second working group, on balance sheet policy, will examine the benefits and risks of the current ample-reserves regime and the composition of the Fed's balance sheet. They will assess alternative frameworks for implementing and operating monetary policy.
Warsh
The third working group, the data working group, will evaluate new sources of information and consider methodological changes to improve data collection, aiming to provide policymakers with more accurate, relevant, timely, and perhaps most importantly, actionable information about the state of our economy.
Warsh
Fourth, the Productivity and Employment Working Group will examine the pace, scope, and economic impact of new general-purpose technologies, including artificial intelligence, and explore their potential implications for the Fed’s pursuit of its employment and inflation mandates.
Warsh
The final working group, the Inflation Framework Working Group, will study the drivers of inflation. Fundamentally, it will explore various ideas for achieving price stability in a changing economy. You will hear more about these working groups and this overall initiative in the coming weeks. For now, just a simple statement: each working group will serve the goal shared by everyone in the system, by everyone who sat around the table with me over the past few days—a Federal Reserve that has a clear understanding of its mission, is fit for purpose, and looks to the future. With that, thank you for your attention, and I’m happy to take your questions.
Speaker 2
Hello, Chair Warsh. It’s good to see you again, and welcome back. With so many things launched so quickly, what is the timeline you envision for each working group?
Warsh
I think that depends on the individual working groups. It also depends on how urgently we need clear answers. My expectation—and I am still in the process of recruiting and finalizing membership—is that the working groups will begin their work in the coming weeks.
We will start getting more information from them by late summer on how they are framing the issues. Hopefully, most, if not all, will reach conclusions by year-end.
Speaker 2
Specifically on the inflation framework, you spoke about first principles. Does that include a review of the 2% target itself? You have mentioned that the digits to the right of the decimal point don’t matter. Does this mean starting from the premise that “2% as a point target is too rigid”?
Warsh
Let me break that into two parts. First, regarding the inflation framework review, its remit is: what are the drivers of inflation? To what extent is the Fed accountable for inflation? How do we measure inflation? But this will overlap somewhat with my Data Working Group.
On the 2% inflation target, this is the Fed’s long-standing 2% target. You’ve heard me say before that I tend to focus on the digits to the left of the decimal point. Well, 2 is now the digit to the left of the decimal point, and zero is to the right. I don’t think there is a need to revisit it until we re-establish our commitment to, and capability of, achieving the 2% inflation target. So that is not within the scope of our work this time.
Speaker 3
Colby, thank you very much. I’m Colby Smith from The New York Times. You have said before that inflation is a choice. In the policy statement, the commitment to achieving price stability that you reiterated today is included. But looking at the SEP, most of your colleagues expect core PCE to be around 3.3% by the end of this year, and the 2% inflation target won’t be achieved until 2028.
So I’m curious, at this juncture, how patient can the Fed be in waiting for one-off inflation waves to pass and for inflation to come down after years of elevated inflation? Under what circumstances would you support the Fed taking action and raising rates?
Warsh
Okay, there are quite a few questions there. Let me try to break them down. First, we have the capability and commitment to achieve the 2% price stability goal. That is exactly what we will do. In the Fed’s review of its strategy over the past few years, including in January—including the strategy we are still bound by—the Fed’s statement noted that inflation is primarily determined by monetary policy. Of course it is.
I’ve said for years that inflation is a choice. Of course it is.
Today, I announced that this committee has decided, clearly and unanimously, that we will achieve this goal. The rest of your question sounds like it’s encouraging me to give forward guidance. We have abandoned forward guidance. Some on the committee, I think, abandoned it, I suspect from our discussions over the past few days, because it felt inappropriate to provide forward guidance at the current moment.
Others have a different view, believing that as a general proposition, forward guidance is not a business we should be in. But that will be handled by the Communications Working Group and my policymaker colleagues.
We will listen carefully to experts and then make our own decisions. But I cannot give any forward guidance on our next steps. The good news is that we will meet again in six weeks.
Speaker 3
Then, I’d like to follow up: regarding the current policy setting, given the data flow we’ve seen and the forecasts, how restrictive do you think current policy is?
Warsh
I’ve heard various descriptions inside and outside the Fed. Let me give my own view: uneven. If I look at the housing market as an example, Fed policy is not the only factor determining housing market conditions. But overall, I think Fed policy there appears to have some restrictiveness. If I were to describe what’s happening in financial markets, it’s hard to use the word “restrictive.”
So I say it’s uneven. This may be a function of the different transmission mechanisms of monetary policy, whether it comes from our interest rate tools or balance sheet tools. The good news is that we also have a working group on this; the Balance Sheet Working Group will study this issue more deeply.
Speaker 4
You said you don’t like forward guidance and removed it from the statement this time. But the dot plot shows that nine members indicated they want to raise rates by the end of this year, and the market has already taken this as forward guidance. So what does this mean for how you guide the market and the future of the dot plot?
Warsh
I have to give you the same answer I gave Ms. Smith. We have a working group responsible for this. Let me add a bit more. I reviewed the dot plot, and when I saw the submissions, I noticed that all submissions were made in pencil, you know, the kind with a big eraser.
That is to say, I think the colleagues here submitted their dots understanding that the world changes quickly and they don’t feel bound by what happens six weeks or six days from now. Should circumstances change... I’d also like to point out a few other things. What I heard around the table was that when they submitted their model projections—to be clear, this is not saying this is more likely than something else, it’s merely saying this is more likely than other scenarios.
So I didn’t hear great confidence. I heard a humility that I think we should have. I did not submit a dot. For me, it’s not helpful for policy implementation. I suspect, as I mentioned in my opening remarks, that by year-end, there will be a review of every aspect of communications—press conferences, the dot plot, meetings, transcripts, minutes. This will be part of that.
I don’t want to prejudge the outcome, but I’m quite open-minded about what the possible outcomes might be. Over the past few days, and frankly, over the past three weeks, I’ve been extremely impressed by how open my colleagues have been to change, and to easy changes that carry risk.
But our primary goal is to set monetary policy correctly. The way to set monetary policy correctly is to fulfill the mandate given to us by Congress and achieve price stability, and there is no disagreement on these issues.
Speaker 4
Possibly getting the same answer about working groups... on communications, what are your thoughts on these press conferences? Do you think you’ll continue to hold them after every meeting? Do you find them useful? What is the future of Kevin Warsh’s communication style?
Warsh
Well, there’s probably another 15 to 20 minutes this time, so I don’t want to prejudge the outcome. Press conferences can be a very useful way to communicate with households, businesses, and more broadly through media like yourselves. I had a great late mentor named George Shultz, whose maxim was that press conferences are useful, but when you hold one, make sure you have something important to say.
Today, I think we had something important to say: our commitment to achieving price stability, our commitment to rethinking practices to move the Fed forward. To give you and the American people a sense that these are not empty thoughts but concrete ideas, we will seek out the best talent—whether the best minds inside the Fed, or the best people I know in business, economics, academia, technology, and elsewhere—to share their perspectives.
That’s what we’ll do here, in pursuit of truth. I think we will come up with some new and interesting things. We made some changes today. I expect more changes, some of which may merit a press conference.
Speaker 5
Hello, I’m Chris Rugaber from the Associated Press. Thank you for taking our questions. Can you give us your longer-term view on inflation? I know you may not comment on short-term ups and downs, but is this mainly driven by energy prices and the war in Iran? Or do you have any concerns about underlying inflationary pressures in the economy? Thank you.
Warsh
I can’t say it better than the committee just did, so let me reiterate. Inflation remains elevated relative to the committee’s 2% target, partly reflecting supply shocks that have driven up prices in certain sectors, including energy. The statement goes on to say, but to be clear, the Fed will achieve price stability. My own judgment is that the committee spent considerable time discussing this, not just these two days but over the course of weeks.
That is what we are prepared to say on inflation. But the commitment to achieving this goal is firm, unanimous, and clear. I think this is an important message we’ve missed for five years, and we will correct that.
Speaker 5
Okay. Also, regarding your Data Working Group and other aspects, I mean, generally, I think people feel the Fed already considers all the data. Certainly, that was the sense before. Is there any data you feel hasn’t received enough attention?
I mean, you’ve mentioned “mean reversion” trends in the past, but again, that’s well known to most Fed members. So what is this working group looking at? What might the outcomes be? I know you don’t want to prejudge the outcome, but are there examples of data you expect might receive more emphasis? Thank you.
Warsh
So, you’re asking me the question. Let me say, I don’t want to prejudge the outcome. I also don’t want to say too much about what they will do, because I still have a call or two to make before I finalize who will lead it. I’m very interested in what outside experts think about this.
I will say this: generally speaking, most of the data consumed by U.S. central bankers and other government officials comes from old-fashioned survey methods, based on national accounts... a description of the U.S. economy that looks very different from the U.S. economy of 2026. Survey method response rates don’t meet the standards we need, and the questions asked may have been very applicable a generation ago but are less so now.
So, even within official statistics, if the working group and our own best thinking propose recommendations on how to use new analytical methods to bring these official statistics up to the standards of our time, I would be open to that. I would also say that almost every private-sector CEO running their own business uses real-time information that doesn’t undergo massive revisions and tells them what just happened at that moment.
As you know, the implementation of monetary policy has normal, long, and variable lags. What we’re really interested in is what’s happening now. We’re less interested in the echoes of history. From my answer, you can hear that some of the data we receive, like the payroll index we wait for on the first Friday of every month or other data, may just be echoes of history, though quite useful by its third revision.
We need to reduce those margins of error, because we have to make tough decisions in real time. I’m very confident we can learn a lot from new data sources in the private sector, reforms in the official sector, and new analytical techniques that are far more granular than simply asking a question about whether something is core or non-core.
Speaker 6
Thank you. Welcome, Mr. Chair. I’m with Fox Business. So, if you don’t provide a lot of ongoing forward guidance, won’t there be more volatility in the markets? Shouldn’t Americans know more about what you’re thinking for the future?
Warsh
I think financial markets perform best when they are reacting to incoming data. I think they are less efficient when they are asking, “How will the Fed react to incoming information?” The more markets focus on what’s happening in the real economy, judging what is good data and what is poorer data, the better financial markets can price in the most likely scenarios and tail risks.
Financial market prices can be the most important source of information guiding central bankers. But when all financial markets do is reflect what we say, then we are taking the most important source of information and blinding ourselves to it. I want us to build a system that removes those blinders, letting markets follow the data they believe is reliable; they will watch the data, and we will watch the data.
They will bring us better information through market prices, and we can make wiser decisions. But ultimately, the goal I set at the beginning—achieving the price stability mandate Congress has directed us to—is what we must set out to do.
Speaker 6
If I could bring you back to the meeting a bit. This was your first meeting. The Board members seemed quite hawkish. When you listened to them overall, was there any discussion about future rate cuts?
Warsh
Today? There was only one proposal on the table. No other proposals were discussed. The discussion on that proposal, I would say, was fairly limited. It was unanimous and clear. It is customary for this central bank and others to have a range of alternatives.
Today, we had only one. I think the further discussion deepened understanding, clarified what we need to do and how to achieve it. I don’t want to prejudge what will happen in the future, but there was only one important issue for us. We accepted it. We had a good internal debate on it for a few days, and ultimately I think we are in a better place.
Speaker 7
Thank you very much, I’m Claire Jones from the Financial Times. You know, reading this very brief statement, which I think everyone in this room appreciates, one might wonder, given what you’ve said here about U.S. inflation risks and your mandate, why not raise rates today?
I’d like to ask, why not? What would you need to see to take action to raise rates? Secondly, regarding your working groups, will you consider drawing on any best practices from other central banks? Thank you.
Warsh
I’m glad they’re accustomed to letting you ask two questions, because my answer to your first question will be very brief: I have nothing to say beyond the statement itself.
In response to the question I got earlier, I think the market’s reaction to our unfiltered remarks is more helpful than improvising after releasing a statement. On best practices for working groups, this is a topic I’ve thought about somewhat. I’ve also participated in a working group or two in my life.
Best practices are: find the smartest people; ensure the working group has people with diverse backgrounds and inclinations so they can have some internal debate; make sure that when you set up a working group, the team that is the recipient of the information also feels they have a stake in it.
That’s why we are looking—haven’t finalized the list yet—at some of the most important talent in our building and across the Reserve Banks, in each area, and in a sense, seconding them to this group for a few months. That way, the working group leaders can understand what the world’s most analytically capable central bank thinks about this and reflect that in the final best practices.
We are not outsourcing decisions to anyone.
The Board of Governors and successive Reserve Banks chose the 19 people around the table. These will be our decisions. We can agree with some recommendations, disagree with others, and have a good internal debate about it. But their output, I hope and believe, will make our internal discussions better, stronger, and more dialectical, so that we can ultimately achieve the price stability goal.
Speaker 7
On the market view you mentioned, let me follow up quickly. If you look at two-year Treasury yields, they actually suggest the market thinks more tightening is needed. Is that also your reading of what the two-year yield is conveying?
Warsh
Hmm? We were in a very good place. I think that's why we're not answering the third question. I'm not going to comment on market reactions over the last 30 or 60 minutes. What we gave markets was a new chapter for the central bank, some new thinking. What we gave markets, households, and businesses, I think, is a commitment to ask ourselves hard questions so that we can deliver on the commitments we previously made.
That's a lot of change for financial markets to digest. I'm not particularly interested in their reaction in the first few minutes or even the first few days. I think what matters most is that financial markets, and at least equally importantly, households and businesses know that this central bank will achieve price stability.
Speaker 8
Hello, Chair Warsh. I'm Brian Chung from NBC News. Thank you for taking our questions. So when you say we've abandoned forward guidance, to an ordinary person that might sound like the Fed is going to say less or provide less insight into where its borrowing costs are headed.
So, for those people you might run into at the grocery store, whose price tags are rising faster than their wages, how would you explain it to them? I don't know, maybe "task force" is the answer. But how would you communicate this era, this chapter of the Fed?
Warsh
If I told someone in front of the milk shelf that I have a task force to handle this, I think that would go over terribly. So I appreciate your question. If I met someone at the grocery store, I would say to them: We can't have a very large impact on specific prices, like the price of oil today, or even the price of a dozen eggs. That doesn't have a primary influence on what we do.
But we do have a very important task there, which is to make sure that those changes in oil, beef, eggs, or milk don't spread through the economy, don't create second- and third-round effects. That's our job, our commitment, our capability, and we will achieve it.
Speaker 8
Is the Fed's relationship with the Treasury also under review? There are usually breakfast meetings with the Treasury Secretary. Do you plan to continue that? Have you spoken with the President since you were sworn in?
Warsh
On the President, I have nothing to tell you. On the Treasury Secretary, he's been posting photos of breakfasts. So I guess I can't deny the long-standing tradition of weekly meetings between the central bank chair and the Treasury Secretary. I think we've had three so far.
I believe he's overseas this week, so this week will be an exception. I think these discussions are very useful. The central bank's objectives and our role and responsibilities are quite clearly distinct from those of the fiscal authorities. In my view, monetary policy is independent in what we do.
But that doesn't mean we're not interested. What happens with the fiscal authorities — my way of thinking is that this central bank needs to be broad in its vision but focused in its mandate. We need to be quite interested in what's happening in the world. I'm not breaking news here by saying we're very interested in what's happening in the Middle East. That does have some implications for our day-to-day work.
That doesn't mean it's our responsibility, but I think we'll maintain a broad vision. So far, my meetings with Secretary Bessent have helped broaden that vision. So we can be aware of things that might affect our day-to-day work, even if they aren't our direct responsibility.
Speaker 9
Steve Liesman, CNBC. Mr. Chair, thank you. Thanks for taking my question. Before you became chair, you said you thought productivity was a reason the Fed could lower interest rates. Do you still think that now?
Warsh
The committee discussed productivity today. AI was mentioned. My view on this before, and the view I shared socially, is that artificial intelligence, the latest generation of general-purpose technology, may be the most important change my adult life has seen for the economy, business, and households. It is full of enormous opportunity and risk. I take both very seriously. You may have heard me say that AI is shorthand for American ingenuity.
That doesn't mean it will be easy. It certainly doesn't mean it won't be disruptive. But over the long run, my belief — and I heard considerable support for this in the committee today — is that America is the winner, and America will ultimately be better off as we go down this path. Now, back to the implementation of policy, the timing, scale, speed, impact on output and employment — that's one of the things we set up the task force to do.
Speaker 9
If you don't mind a follow-up from another angle, when you see strong job growth, elevated inflation, GDP that seems to be doing well, and a stock market that seems to be surging. You look at this economy, do you think the federal funds rate is restrictive?
Warsh
So that's your second question. I'll give the same answer as before. I said, when I think about policy implementation, what matters is the effect of policy, not what we say, but what happens. The best way I can describe it is uneven. I do see some restrictiveness in areas like the housing market. But it's hard to use that same description almost anywhere else. Let me add one more point.
You talked about one of our dual mandates and the employment side. I don't think we face a brutal choice. I disagree with the view expressed generations ago, that a Fed chair stands at a podium like this and says you have to choose, you have to decide whether you're willing to tolerate higher inflation to get more people employed.
I don't believe that. What I believe is that if we do our job well, we can make strong growth, low prices, and strong employment compatible with each other. So what you heard from the committee today is that we still have some work to do on price stability.
Speaker 10
Thank you, I'm Nick Timiraos from The Wall Street Journal. Chair Warsh, you've said many times that credibility is earned by delivering. If credibility needs to be earned by delivering, then the action should be to tighten, or at least to threaten to tighten. Now, you didn't do that today. Why?
Warsh
That judgment you expressed, not a single one of the 19 people in this room expressed it. We'll meet in six weeks and discuss this issue again.
Speaker 10
If I may ask about AI. Infrastructure buildout is generating enormous demand. Capital spending, data centers, electricity, and the productivity returns may be further out. So in your judgment today, is AI adding more to demand or to supply?
Warsh
That's a great question for central banking and the economics profession. We spend most of our time calculating demand. It's easier, we can see it, we can calculate it, we can check it, we can revise it. But what we have to do is infer supply.
You'll notice, in the second paragraph of what one of your colleagues described as a very brief statement, we have one sentence on the demand side and one sentence of equal length on the supply side. Both are important, and just because we can calculate one better doesn't mean we favor it over the other.
On AI and the growth of data centers and related infrastructure, we are calculating the demand side, and there's no doubt it's showing up in the GDP data. When we're inferring the timing and extent of growth on the supply side, we're less certain. Perhaps intuitively, the supply side will expand, but it will take longer. I describe it this way: there's a race between supply and demand.
Milton Friedman said the only thing we know about economics is there's a supply line and a demand line. They eventually intersect. What does that mean for policy? The good news is, we have a task force to deal with this.
Speaker 11
Thank you, Mr. Chair. It sounds like, regarding the data task force, you're considering an overhaul of the national accounts system, the way the government measures the economy. Is that your goal?
Warsh
In one word: no. In a few words: most of that data collection happens at other government agencies, for which we have great respect and deference.
But if in the process, we come up with suggestions — and Fed staff have already begun developing those suggestions — about what they could do to help us as policymakers get information, we won't hesitate. Again, I don't want to try to define the four corners of what the data task force studies. But I do think there will be a review of official statistics, and at least equally importantly, consideration of bringing in best practices from the private sector and new analytical tools enabled by AI.
So we can integrate them and give us better real-time information. So that, as I mentioned earlier, when we make decisions, we're basing them on truly contemporaneous data, not what we call contemporaneous data that's actually an echo of history.
Speaker 11
Okay, thank you. Another question I wanted to ask relates to the building renovation. Are you considering any changes to the renovation project? Given that they've become something of a political football over the past year.
Warsh
I've heard a bit about that. I don't think I'm breaking news here, but my view is that when you enter a new institution, you should go see the inspector general, it's just good practice. I hope to continue that practice. I've already had one meeting with the IG. He told me what I think the world already knows, that he will issue a report on the building and the building project later this summer. I will be interested to read that report.
From my perspective, looking forward, from now until project completion, what can we do or what should we do to be the best possible stewards of taxpayer money and ensure we deliver on the commitments we made. There's still some work to do. You probably won't be surprised that in the first few weeks, I've been a bit busy with other matters, but I'm committed to fully addressing all of the Fed's tasks in the coming weeks.
Speaker 12
Victoria Guida, from Politico. I know you didn't submit a forecast, but you are the person authorized to speak for the FOMC. So I'm wondering if you can tell us, in the SEP, was the rise in inflation expectations entirely because of the Iran war? What was the discussion like regarding the rise in inflation expectations and the potential slowdown in growth?
Warsh
My reading of the committee discussion is — I have to acknowledge, the SEP shows that half of my colleagues think, given all the developments, the policy rate should be at current levels or lower between now and year-end; the other half think it should be higher. The 19th voter is me, and I didn't submit. There's a range of views on the question of first-round and second-round effects, with no consensus or firm view. But we'll meet again in six weeks. I think we'll know more by then, and I think my colleagues will be very attentive to new developments between now and then.
Speaker 13
Can I quickly follow up on the SEP, you said you're still encouraging your committee colleagues to submit forecasts, even if you yourself don't. So what do you see as the benefit of them doing so even if you don't?
Warsh
That's a commitment the FOMC made, and it's one I hope we can deliver on. The commitment we made is to achieve price stability. I expect we can deliver on it by the end of this year. As I mentioned, I wouldn't be surprised if a new communication framework emerges. There will be some changes.
On the SEP, that's a committee discussion, a vigorous discussion. I think we'll have that discussion. I'm confident we'll arrive at a better communication mix to deliver on our commitments. But I don't want to prejudge what those are.
But until then, I'll continue to expect colleagues to submit their SEPs. Some of them, I think, believe the current practice structure is okay, but I heard a lot of interest in real reform on all these topics. You didn't ask this, but I'll answer. The last few days have been very kind, and the last few weeks have been fairly warm. This institution wants to figure out how we can do better.
The institution is returning to first principles. I'm encouraged that what we did in the statement, the changes we're considering on the SEP, that instinct to open a new chapter is real. By the end of this year, I hope we can achieve something in both form and substance.
Speaker 13
Could you walk us through some of the principles guiding your own reaction function, and tell us some of the conditions under which you think the Fed should react?
Warsh
This is going to be a very unsatisfying answer to the final question. The Fed has a lot of responsibilities, not just in monetary policy, but also supervision and regulation, consumer affairs, and payments. My own view is that our credibility comes from delivering on what we say in everything we do. In my first three weeks, I've spent more time on monetary policy than on all the other things.
But the more we deliver on our commitments as good regulators and supervisors, the more benefit we get, and the more our credibility on monetary policy is enhanced. Look, when we achieve our price stability goal — and we will — the American people will feel that the hardship they've experienced over the past five years from inflation is in the past.
And that credibility will pay dividends in what we do. This institution will come to press conferences like this with a reform momentum, with a drive to do better. But we will achieve something.
Speaker 14
Labor data across regions. How would you summarize the labor market?
Warsh
The labor market right now, do you see it as stable, or could it be a source of inflation? Thank you. Okay, yes. If I were to capture the committee's view, the committee sees the labor market as stable. Some on the committee think the trend is better than that. Trends matter more than data points. What happens over three or six months matters more than any single data point, any single data release.
I would say the employment data has been trending in a favorable direction. If there's another thing I've heard on this topic over the last few days, it's that strong productivity-led growth is not something we fear, but something we embrace. Thank you very much, everyone.
