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Fed Chair signals no rate hikes coming as inflation data cools

James Rodriguez 0 comments 6 min read
Fed Chair signals no rate hikes coming as inflation data cools

Federal Reserve Chair Kevin Warsh offered hints Tuesday that the central bank is unlikely to raise interest rates in the coming weeks, even as he continues testifying on Capitol Hill about the Fed's economic outlook and policy tools.

The signal came during a House hearing when Warsh remarked that Fed colleagues need to discuss "the extent and timing" of deploying policy tools to address price stability, language suggesting no immediate decision has been made. Coming late in a three-hour session, the comment appeared less guarded than his prepared remarks and offered a clearer window into the Fed's thinking.

The timing of that testimony coincided with fresh inflation data that has significantly shifted market expectations. The Labor Department released a Producer Price Index report Wednesday showing the overall index fell 0.3% in June, while the core measure excluding food, energy and trade services rose just 0.1%. The reading followed Tuesday's similarly mild Consumer Price Index report, both suggesting inflation pressure is easing.

Market traders have now dramatically reduced their expectations for rate increases this year. Odds of a hike at the Fed's late-July meeting have become remote, according to market pricing.

Still, Warsh cautioned against reading too much into any single data point. While acknowledging the favorable June inflation figures, he emphasized that "any central bank would be happy to have the data going in the right direction," but added that "these are all imperfect measures of the state of underlying inflation."

The Fed chairman said a central bank task force will examine how government data agencies might better track inflation in a changing economy, suggesting the Fed wants more refined tools before making major policy shifts.

Warsh appears before the Senate Banking Committee Wednesday, his second day of congressional testimony this week, as lawmakers push for clarity on the Fed's direction heading into the second half of the year.

Author James Rodriguez: "Warsh's exhausted candor late Tuesday may have revealed more than a polished statement ever could, and investors clearly believe the Fed is pumping the brakes."

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