US Fed Meeting LIVE: Hike or hold? Warsh keeps investors guessing ahead of Fed announcement

US Fed Meeting LIVE: The Federal Reserve held interest rates steady on Wednesday, a choice that may intensify questions about how U.S. central bank chief Kevin Warsh will deliver on his commitment to bring inflation back down to the 2% target.

The widely expected decision to leave the benchmark interest rate in the 3.50%-3.75% range drew dissents from three of the 12 members of the policy-setting Federal Open Market Committee who "preferred" a quarter-percentage-point hike at this meeting.

Those same three, the presidents of the Fed's Cleveland, Dallas and Minneapolis regional banks, had also dissented at Jerome Powell's final meeting as central bank chief in late April, that time in favour of removing the implied promise of lower rates.

Most investors expected the Fed to hold rates steady, according to CME's FedWatch monitoring tool, but bets on a rate hike rose significantly in the days leading up to the meeting.

Later during the press conference, Warsh said that the Fed's key goal is to keep inflation at manageable levels.

“You’ve heard this before, but we will deliver price stability,” Warsh said.

Warsh said the Fed does not have soft targets for inflation. He said the one target they are working towards is the 2% annual rate deemed healthy for the economy.

“We have begun a new chapter, and we understand that the five-plus years of inflation above target cannot be cured in nine weeks, or by a single month of modest price decreases,” Warsh said. “This Fed will not waver. Our credibility rests on performing our duties and delivering on our responsibilities.”

The Dow Jones Industrial Average and the S&P 500 fell on Wednesday, in volatile afternoon trading after the Federal Reserve left rates unchanged.

The Dow traded 744 points lower, or 1.4%, while the S&P 500 slid 0.3%. The Nasdaq Composite rose slightly.

“I wouldn’t characterise what we did as anything like a pause. I would characterise what we did as a rigorous review of the economic situation,” Warsh said when asked by a reporter about the argument to “pause” interest rates rather than hike or cut them.

“I would characterise what we did as a review of the big hard questions, and I’d characterise it as a view of what our own homework is to try to resolve those questions in the period ahead.”

He added that while the central bank decided not to alter interest rates today, this is merely the beginning of a story, not the end.

Warsh’s “family fight” phrase returns during the press conference as three Fed officials dissent on the rate decision

“I asked for a good family fight, and I got one,” he said. “Most of our discussion was on the big questions that matter to the conduct of monetary policy. We didn’t sort of hide from them. We weren’t scared of them. There was a lot more interaction among my colleagues. It was a real family fight.”

While the majority of the Federal Open Market Committee agreed to hold rates steady in July, three dissented, arguing instead to hike rates to combat above-target inflation.

The S&P 500 moved higher on Wednesday as investors bought megacap stocks, while the Fed kept interest rates unchanged.

The S&P 500 gained 0.2%, while the Nasdaq Composite rose 0.5%. The Dow Jones Industrial Average traded 542 points lower, or 1%.

Big tech stocks rose in afternoon trading, with Apple and Microsoft gaining more than 1%. Alphabet advanced more than 2%.

Warsh welcomed the rise in Treasury yields since the Fed’s last meeting, even as policymakers opted to keep rates unchanged.

“Market attention centred on real data and real economic developments. Prices reacted in real time to incoming information,” he said. “Market participants are learning to play the ball, not the referee, and market prices will continue to respond in the direction and magnitude they see fit.”

Warsh added that the trend is one for the better, saying the Fed doesn’t always need to be the centre of attention.

Although the Fed kept rates unchanged again, Warsh said the central bank is prepared to act if inflation remains stubborn.

He also noted that the Fed under his watch isn’t in the forecasting business and won’t be providing further hints about where rates are heading.

“I understand the desire for rolling forecasts and commentary from this committee, but for our part, we need to observe market reaction to developments direct and unfiltered,” he said.

“I want to stress, of course, that decisions by this committee matter a great deal, and where necessary and appropriate, we will not hesitate to act.”

US economy showing 'impressive resilience', Fed chair Warsh said during press conference after Fed outcome

"The economy is showing impressive resilience, even with recent shocks," Warsh told a news conference. "The trends are positive and reveal solid growth. Job gains have kept pace with the workforce, and the unemployment rate has changed little."

Warsh reiterated that the Fed's key goal is to keep inflation at manageable levels.

Chris Rupkey, chief economist at FWDBONDS, borrowed a favoured phrase of Warsh’s to criticise what he views as the Fed overlooking inflationary pressures, a CNBC report said.

“If inflation is a choice, the Federal Reserve meeting today shows no sign of taking steps to bring it under control with its primary monetary tool which is interest rates,” Rupkey said, referencing Warsh’s repeated comment that “inflation is a choice.”

"The Committee decided to maintain the target range for the federal funds rate at 3-1/2 to 3-3/4 percent, in support of the Federal Reserve's dual mandate. The Committee is continuing its policy of maintaining ample reserves in the banking system."

Job gains have kept pace with the workforce, while the unemployment rate has remained largely unchanged, Fed said

Productivity growth and capital investment remain strong, it adds

“Economic activity is expanding at a solid pace despite high uncertainty, and productivity growth and capital investment remain robust.”

Inflation remains above the 2% target, partly due to supply shocks in sectors such as energy, it notes

The Fed’s rate-setting committee reached the 9-3 decision after two days of deliberations, marking the fifth straight meeting at which the benchmark rate was kept at around 3.6%.

Dissenting in favour of a quarter-point interest rate hike were Beth Hammack, president of the Federal Reserve Bank of Cleveland; Neel Kashkari, president of the Minneapolis Fed; and Lorie Logan, president of the Dallas Fed. Inflation has been stuck above the central bank’s 2% target for more than five years.

"Inflation remains elevated relative to the Committee's 2% goal," the Fed said in a short policy statement after the end of its latest two-day meeting. It replicated word-for-word all of the June 17 statement's assessment of the economy.

The Fed said economic activity is "expanding at a solid pace," noting, as it did in June, that job gains "have kept pace with the workforce, and the unemployment rate has changed little."