First hike under Warsh
In his first rate increase as Federal Reserve Chair, Kevin Warsh oversaw a quarter-point rise in the federal funds rate, bringing it to a target range of 3.75% to 4%. The Federal Open Market Committee announced the move in a brief 132-word statement. It marks the first increase during Warsh's leadership and the first hike by the central bank since July 2023.[S1]
Warsh said the decision was intended to return inflation to the Fed's stated 2% target, a level not reached since February 2021, and to do so in a timely manner. He declined to provide forward guidance on whether this would be the first of several increases. However, the latest FOMC Economic Projections, released the same day, indicate that his colleagues do not expect median Personal Consumption Expenditures (PCE) or Core PCE rates to hit 2% before 2029.[S1]
Inflation data and timing
When questioned about the timing of the September increase instead of July, when the FOMC had opted to leave rates alone, Warsh said he and most of his colleagues preferred to gather additional data before acting. That waiting period, he added, failed to deliver the hoped-for clarity. Drawing on recent CPI and PPI readings, he estimated the 12-month rise in headline PCE prices at roughly 3.6% for August, with core PCE near 3.2% and CPI around 2.4%. He added that an excessive number of categories still show gains above 3% over both six- and 12-month spans.[S1]
According to an FOMC Recap published by the Royal Bank of Canada, 16 members of the committee anticipate a further rate increase during 2026. The same report observed that the September Economic Projections lifted forecasts for both PCE inflation and GDP growth while trimming unemployment expectations, producing an outlook weighted toward the risk of rising prices.[S1]
Criticism and economic outlook
Kyle K. Moore, chief economist at The Century Foundation, contended that lifting rates will neither bring inflation down nor mitigate growing geopolitical danger. He observed that PCE inflation was 2.9% before the conflict with Iran started in late February, then climbed to 4.1% by May. Moore traced the heaviest price strains to interrupted fuel and fertilizer supplies plus unpredictable tariffs that inflate business costs and complicate planning. In his view, higher rates cannot reopen the Strait of Hormuz, reduce energy expenses, or undo a tariff.[S1]
Warsh conceded that geopolitical events keep uncertainty elevated, yet he insisted the American economy is gaining strength. He pointed to recent gains in new hiring, private-sector earnings, and business and capital investment, describing each indicator as moving in a favorable direction. He further observed that credit flows have remained strong, especially for businesses, and restated the position he took at the Jackson Hole policy symposium: he would find it difficult to call broad financial conditions restrictive.[S1]
