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- Caroline Mercer via TIME.com
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Warsh Raises Rates and Reshapes the Fed
ReWarsh Raises Rates and Reshapes the Fed
Kevin Warsh presided over his third FOMC meeting, where the Fed unanimously raised interest rates by a quarter point for the first time since 2023. The decision, aimed at curbing persistent inflation, drew sharp criticism from President Trump and highlights Warsh's broader reform agenda for the central bank.
Federal Reserve Chair Kevin Warsh led his third Federal Open Market Committee meeting on Sept. 15 and 16, where the central bank unanimously agreed to raise interest rates by a quarter percentage point. It was the first rate hike since 2023, lifting the benchmark rate to a target range of 3.75% to 4%. The move came after August jobs numbers exceeded analyst expectations, and markets now anticipate at least one more increase before the year ends.
The decision reflects the Fed's ongoing struggle with inflation that has remained above its 2% target for more than five and a half years. «The plain fact is that inflation is too high and has been for too long,» Warsh said. Few economists disputed the need for the hike, but President Donald Trump quickly voiced his opposition on social media, writing, «LOWER THE INTEREST RATES FOR THE UNITED STATES OF AMERICA, AND FAST!» Speaking to reporters in North Carolina, Trump blamed Warsh's Board of Governors for the decision, calling them «very political» and «a bunch of politicians.» He added that he had told Warsh, «You might as well vote with the board because it's just not going to matter.»
Warsh, who took over the more than century-old institution earlier this year, has moved swiftly to leave his mark. Within his first month, he launched five task forces to develop recommendations across different areas of the Fed's mandate. At his first FOMC press conference in June, he announced initiatives covering communications strategy, the balance sheet, data sources, productivity and jobs, and the inflation framework. Each group is led by three outside experts from academia and industry, with preliminary findings expected this fall and most work concluding by year's end.
Communication has drawn the most attention. Warsh stopped offering long-term projections on policy actions and simplified press releases, signaling a break from recent practice. He believes markets have become too dependent on Fed communication, reacting more to officials' words than to underlying economic data. This, he argues, distorts the Fed's read on market conditions. Central to his critique is skepticism of forward guidance, the practice of providing long-term outlooks to signal predictability. Used since the 1990s, it became a key tool during the 2008 financial crisis when rates hit the zero lower bound. Warsh wants to end it, saying it ties the Fed's hands. «The role of forward guidance should be limited and circumscribed,» he said. «Oversharing policy deliberations and overcommitting to future decisions can lead markets, businesses, and households astray.»
Yet even a more restrained communication style does not shield a Fed chair from scrutiny. After his second FOMC meeting in July, many observers felt Warsh underperformed at the press conference, and markets reacted with alarm, raising questions about his credibility. He moved quickly to recover, delivering a forceful address at the Jackson Hole Economic Policy Symposium in Wyoming at the end of August, where he emphasized the urgency of bringing inflation down. The speech reassured markets and reset the tone ahead of September's meeting.
Warsh has also proposed reducing the number of annual FOMC meetings from eight to six, which would be the first such structural change since the 1980s. He argues fewer meetings would give the committee more time to absorb data and deliberate. Critics counter that the tradeoff is agility, as fewer meetings mean fewer opportunities to respond to fast-moving conditions without emergency sessions. Warsh has not yet convinced critics that the current schedule leads to worse policy outcomes.
Among his remaining reform areas, the balance sheet and inflation framework are under review. How far Warsh can advance his agenda will depend on his ability to build coalitions among fellow board and FOMC members and maintain the confidence of financial markets. The pace and ambition of his efforts signal seriousness, but whether they prove truly transformative remains an open question.
