A group of Federal Reserve policymakers sent Fed Chair nominee Kevin Warsh a clear warning on Wednesday: They’re not sold on cutting interest rates.
The central bank’s rate-setting committee voted to hold borrowing costs steady at what will likely be Jerome Powell’s last meeting as chair. But three regional Fed presidents — a quarter of the central bankers with a vote on policy — dissented on language in the post-meeting statement that suggests the next time the Fed changes rates, it will be to lower them.
The extraordinary move means that Warsh, if he is confirmed by the Senate next month, will have his work cut out for him if he wants to deliver on President Donald Trump’s demands for lower borrowing costs.
The Fed chair has to wrangle a sprawling committee of Washington-based board members and regional Fed presidents, a task to which Powell has dedicated extensive effort. The current Fed chief has followed the practice of his predecessor, Janet Yellen, who would talk to every committee member before each rate-setting meeting.
Warsh, who moved a step closer to final confirmation on Wednesday, previously served as a Fed board member from 2006 to 2011. But he will have to build goodwill among its current policymakers, especially in the wake of his stark criticism of the institution. He has suggested that Fed officials should speak publicly less often, though as chair he will not have direct control over whether they do so.
The statement language objected to by the three policymakers — Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari and Dallas Fed President Lorie Logan — was in previous iterations of the document, which is generally only tweaked in small ways after every meeting to reflect the latest economic developments.
But central bank officials have grown more wary about the potential for a reacceleration in inflation in the wake of war in the Middle East, which has persistently driven oil prices above $100 a barrel. Their dissents indicate that they now see rate hikes as being just as likely as rate cuts.
“In considering the extent and timing of additional adjustments to [the Fed’s policy rate], the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks,” according to the statement. The word “additional” suggests a bias toward rate decreases, since the Fed most recently cut rates three times late last year.
There was also a dissent on the substance of the decision itself. Fed board member Stephen Miran, who last year served as chief economist to Trump, preferred to lower rates. But Miran is serving on an expired term, and Warsh has been nominated to that open board seat, meaning Miran will have to leave once Warsh is confirmed, as expected.
The last time four officials dissented during a Fed rate meeting was October 1992.