Fed's Warsh Fails to Explain Rate Pause as Inflation Stays High, Raising Doubts on Policy Credibility

Federal Reserve Chair Kevin Warsh left markets without a clear rationale for holding rates steady despite strong growth and elevated inflation, renewing doubts about the central bank's commitment to its 2% target, Reuters columnist Jamie McGeever wrote Thursday. The Fed kept the federal funds rate at 3.75%-4.00%, declining to follow September's hike, its first in more than three years. It upgraded its description of economic activity to "strong" from "moderate," and Warsh acknowledged inflation remains too high. He said financial conditions had tightened slightly in the six weeks since September but added he "would not, and could not" call them restrictive. Warsh denied the decision was influenced by next week's midterm elections, and his remarks suggested a December hike is likely. The yield spread between 2-year and 10-year Treasuries widened more than 6 basis points Wednesday, the largest one-day increase since July 29. The 10-year breakeven inflation rate rose to 2.38%, a six-week high. Annex Wealth Management economist Brian Jacobsen said words alone cannot curb inflation.