US Fed Meeting Highlights: Dow falls 700 points after Kevin Warsh says inflation remains too high

Federal Reserve Chairman Kevin Warsh said he wouldn’t divulge details on the Federal Open Market Committee’s future decisions on rates.

“I’m not in the forward guidance business,” he told reporters. “The decision we made today was a sober decision, serious decision, responsible decision, one that we have been preparing for and thinking about in my 110 or [120] days here.”

“We made this decision today based on our assessment of the situation, based on our assessment of the trajectory for employment, based on our judgment on the strength of the economy. Sometimes the market tries to prejudge our outcomes. I’ll observe market prices and see what they have to say. But today was our decision,” Warsh said.

Kevin Warsh declined to discuss his conversations with President Donald Trump, who has repeatedly called for lower interest rates in recent months.

“I’ve got nothing for you on the discussion with the president,” Warsh said.

The Fed raised interest rates on Wednesday after leaving them unchanged at its meeting in late July. Chairman Kevin Warsh said three key developments had changed the policy outlook between the two meetings.

He said data in recent weeks have shown a strong economy, particularly in the labour market. Meanwhile, inflation remained elevated over the summer compared to the Fed’s target for a 2% year-over-year rise in prices. Lastly, he said geopolitics also contributed to the altered outlook, though he didn’t directly reference the U.S.-Iran war in the Middle East.

“All three of those things lend themselves to a firm unanimous decision today,” he said.

Kevin Warsh spoke directly about the worst-off Americans during his Wednesday press conference. “Those who are least well off have the most to gain from a durable expansion, a solid labour market, and stable prices,” Warsh said.

Economists have broadly viewed the US economy as forming a “K”-shape, meaning higher- and lower-earners have diverged financially in the years following Covid. Lower-earners have tended to report worse consumer sentiment in recent years, according to data from the University of Michigan’s closely followed survey.

Kevin Warsh said in his opening remarks that he and fellow policymakers remain dissatisfied with the pace of inflation.

“Our predominant focus is on the price stability side of our mandate. The plain fact is that inflation is too high, and has been for too long,” he said in opening remarks of his news conference.

“This summer’s inflation readings do not tell me that underlying trends have meaningfully improved,” Warsh said. He noted that too many categories within the recent CPI and PPI data are still showing increases above 3% on a six- and 12-month basis.

The chairman said the Federal Open Market Committee has a “vital and straightforward purpose” of achieving full employment and price stability while supporting a thriving US economy that sets the global standard.

The dollar strengthened as Federal Reserve policymakers indicated another interest-rate increase for later this year after they raised rates on Wednesday in a widely anticipated move.

The Bloomberg Dollar Spot Index rose 0.3% in a third day of advances, making it the best three-day rally since June.

The Dow Jones Industrial Average fell on Wednesday after the Federal Reserve hiked interest rates for the first time in more than three years.

The 30-stock Dow traded down 2800 points, or 0.4%. The S&P 500 was trading around the flatline, while the Nasdaq Composite added 0.4%.

US Treasuries held their gains after the Federal Reserve lifted interest rates for the first time since 2023 and forecast further action to rein in inflation.

The 10-year yield remained lower on Wednesday by five basis points at 4.95% after policymakers voted to lift the benchmark policy rate by a quarter point. The move was widely expected, with two-year yields — most sensitive to the Fed’s policy — lingering down about two basis points at 4.64%.

Goldman Sachs Asset Management expects the Fed to increase rates one more time this year, in December.

“The Fed has signalled it does not at this stage envisage an aggressive tightening cycle. Most FOMC members see a total of two hikes this year per the SEP, and it will likely skip October’s meeting given its proximity to the midterm elections,” said Kay Haigh, the firm’s global head and chief investment officer of fixed income and liquidity solutions.

That said, the December hike remains contingent upon upcoming inflation reports and the path of energy prices, he noted.

The Fed’s 25-basis-point rate increase is set to filter through to household finances, with borrowing costs and returns on savings likely to move in different directions.

Consumers could face higher costs on credit card balances, new car financing and some types of home loans. At the same time, savers could see banks offer higher interest rates on deposits and savings accounts.

Federal Open Market Committee votes unanimously to raise its benchmark interest rate to a target range of 3.75%-4.00%

“Dot plot” of rate projections shows 16 of 18 officials expect to raise interest rates at least one more time by the end of 2026, with four penciling in two additional rate hikes and the median forecast drifting up to 4.1% from 3.75% in June; the median official saw rates remaining at 4.1% in 2027, though eight officials saw them at 4.4%

Fed says Wednesday’s policy action “will support a timelier return to the committee’s 2% goal”

Median Fed official sees core inflation at 3.4% by end of 2026, up slightly from 3.3% forecast in June; sees GDP growth of 2.3%, compared with 2.2% previously

Fed says “While uncertainty remains elevated owing, in part, to geopolitical developments, domestic spending has been resilient,” and repeats that “productivity growth is strong, and capital investment is robust”

Fed repeats job gains “have kept pace with the workforce, and the unemployment rate has changed little”

The S&P 500 rose on Wednesday after the Federal Reserve hiked interest rates for the first time in more than three years to combat inflation.

The broader market was up 0.3%, while the Nasdaq Composite added 0.8%. The Dow Jones Industrial Average traded just below the flatline.

The dot plot grid of individual officials’ expectations indicated that 16 of the 18 participants – Chairman Kevin Warsh has chosen not to submit a dot since taking the position – expected another hike, with four of those seeing two more as possible. Two participants expected the committee to stop at one hike.

However, there are no increases pencilled in for subsequent years, with one cut each indicated for 2028 and at least one for 2029.

The Federal Reserve on Wednesday (September 16) raised interest rates for the first time in more than three years and signalled another hike ahead as it seeks to contain inflation driven by rising oil prices and other factors.

As widely expected by markets, the Federal Open Market Committee voted unanimously 12-0 to raise the benchmark interest rate by 25 basis points. The increase took the federal funds target range to 3.75%-4%.

Morgan Stanley economists reflected the broader Street sentiment. In a note Monday, the firm said it had switched its forecast from no hikes this year to two, based in part on Warsh’s public statements as well as the leg higher in oil prices, inflationary expansion in artificial intelligence and a broader shift toward expectations for hikes.

The firm expects one this week, followed by another in December.

The Bank of Canada’s governing council warned that it may need to hike interest rates, saying the longer gasoline prices remain elevated, the more likely that would pass through to other goods and services.

Policymakers held the policy rate at 2.25% for a seventh consecutive time when they met earlier this month, but Governor Tiff Macklem struck a hawkish tone, saying inflation was too high, and that upside risks had increased.

Investors will be watching a slew of other indicators Wednesday, as the committee updates its Summary of Economic Projections.

The document includes updated outlooks for unemployment, inflation and gross domestic product, as well as the dot-plot of individual participants’ expectations for interest rates. This update of the grid for the first time will include expectations for 2029.

Stocks joined bonds higher after days of selling as oil prices fell, with traders betting the Federal Reserve will raise interest rates to fight inflation and bolster its credibility.

Equities rebounded from the lowest since July, with the S&P 500 halting back-to-back losses. A rally in chipmakers also buoyed sentiment. Treasury 10-year yields dropped from a nearly two-decade high.

Brent crude slipped to around $106 as traders weighed the outlook for supplies, with Saudi Arabia said to be seeking to resume about half of a key pipeline within days.

While campaigning for the top job last year, Warsh said the Fed could lower interest rates. But since getting the nod, the Iran war has sharply raised gas prices, lifting inflation to 3.7% in July, according to the Fed’s preferred measure.

In April 2025, before Trump’s tariffs, it had fallen to 2.3%. Core inflation, which excludes the volatile food and energy categories, was 3.3% in July, up from 3% just before the Iran war.

If the Fed forgoes a rate hike, it would risk being seen as giving in to pressure from the White House, which could undercut its credibility with financial markets.