The Warsh Fed opens with a hold and five words on inflation

The FOMC held its target range at 3.50–3.75% on June 17. It was the first decision of the Kevin Warsh era, and it was unanimous. April had produced a four-way dissent, the widest split on the committee in years, so a 12–0 vote was itself the headline. The new chair opened with consensus instead of a pivot.

The statement read differently too. It was sharply shorter than the committee’s recent releases, and the customary forward-guidance paragraph was gone. In its place was this: “Inflation remains elevated relative to the Committee’s 2 percent goal, in part reflecting supply shocks that have driven price increases in certain sectors, including energy. The Committee will deliver price stability.”

April versus June

Five words, “The Committee will deliver price stability,” replaced the paragraph of forward guidance markets usually parse line by line.

The shock started unwinding a day later

The committee decided with May’s 4.2% CPI print on the table and the Strait of Hormuz still effectively closed. On June 18, one day after the decision, a U.S.–Iran memorandum of understanding reopened the strait. Brent crude averaged $85 per barrel in June, down $22 from May and $32 from the April peak, per the EIA. The supply shock the statement cites began reversing almost immediately after the vote.

For bank balance sheets, the message is symmetrical patience. The statement acknowledged that “economic activity is expanding at a solid pace despite elevated uncertainty that owes, in part, to the conflict in the Middle East.” A unanimous hold in front of a reversing energy shock shows a committee content to let the data settle before the July 28–29 meeting.