Warsh wins credibility with Fed rate hike: 5 takeaways

While President Trump has not publicly criticized Federal Reserve Chair Kevin Warsh for the central bank hiking interest rates on Wednesday, the move was still the opposite of what the president wanted.

“I’m relying on Kevin. But he’s got … a very tough board,” Trump told reporters in North Carolina on Wednesday, adding interest rates are “too high.”

The Federal Open Market Committee (FOMC), which includes Warsh, voted unanimously to raise its baseline interest rate by a quarter point, to a range of 3.75 percent to 4 percent. While speaking to reporters after the decision, Warsh cited persistent inflation for the hike.

Here are five things to know about the FOMC’s decision and the president’s reaction.

Warsh wins credibility, Fed shows independence

In raising rates for the first time in three-plus years, the FOMC did what markets overwhelmingly anticipated.

Hours before the vote, traders were pricing in a nearly 93 percent that the rate-setting panel would hike by a quarter point, according to the CME Group’s FedWatch tool.

“I would have argued for a rate hike,” Loretta Mester, a former president of the Cleveland Fed, told The Hill. “I believe there is a cogent case: Growth is solid, capex [capital expenditure] is strong and consumer spending is healthy.”

Warsh laid out why the Fed was hiking rates, noting inflation “remains elevated” above the central bank’s 2 percent target rate; annual inflation was 3.4 percent in August, as measured by the consumer price index. 

“The plain fact is that inflation is too high and has been for too long,” the Fed chair told reporters.

On the day Warsh took over the Fed, Sen. Elizabeth Warren (D-Mass.) called him Trump’s “sock puppet.” But Warsh vowed in April, during his confirmation hearing before the Senate Banking Committee, to be an “independent actor” at the Fed.

“It’s the most important thing to me,” Warsh told Sen. John Kennedy (R-La.), referring to his own credibility. 

The chair reiterated the importance of the Fed’s independence on Wednesday, saying the principle was a “two-way street.”

“I do think that Chair Warsh demonstrated with this action that the Fed is making monetary policy decisions based on the economics and independent from political considerations,” Mester added. “And markets participants likely felt some reassurance.”

Trump blames Fed........

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