Fed Chairman Tries to Explain Why an Interest Rate Pause Isn’t a Pause

Give Warsh an A+ for question avoidance. Key Press Conference Statements - You’ve heard this before, but we will deliver price stability. - Five years of high inflation has left an impression that’s hard to shake. That the Fed’s implicit inflation targe is above 2 percent. Let me reiterate, there is no soft inflation target. There is no soft implicit target. There is only a target and it’s 2 percent. - We understand that 5 plus years of inflation cannot be cured in 9 weeks or by a single month of modest price decreases. - [Regarding forward guidance] Market participants are learning to play the ball and not the referee. This is in my view a change for the better. I understand the desire for rolling forecasts and commentary from this committee, but for our part, we need to observe market reaction to developments, direct and unfiltered. - Where appropriate, we will not hesitate to act. To echo an old phrase, has the past really become the past. Reporter Q&A Message from the Markets Q: Steve Liesman, CNBC: What message are you getting from the market as to where policy out to be right now? A: The message from markets is the message from markets. What we are tying to de is get an unfiltered message from markets. Mish: Warsh rambled on for a minute unwilling to say the message from the markets is rates are too low. Q: Steve Liesman: I get that Mr. Chairman. An the follow-up question is if the market’s are talking to you, and if it’s real rates are higher, it would suggest that’s where the funds rate out to go. A: Interpreting markets is an imperfect business. We can think these things are over-determined. Blah blah blah Even though we have not done much in 42 days the markets have done quite a bit. Question on Dissents Q: Claire Jones, Financial Times: Can you characterize the arguments that the three dissenters put forward? A: I asked for a good family fight and I got one. That’s the purpose. That’s a design feature. It was a real family fight. We have the power, the tools to deliver stable prices. Blah blah blah. The problem with data dependence is the data and the dependence. Mish: He never answered the question. Why Shouldn’t Rates Be Higher? Q: Neil Irwin, Axios: Why should rates not be higher today? A: Rates are higher today than they were 42 days ago. Markets have made decisions because we stepped back in part from trying to influence those. Market judgements have moved up. We are observing them. So I think it’s a mischaracterization to say the markets haven’t reacted because we didn’t move today. We will continue to monitor the markets and see how they react and that can help our decision making when we meet in 7 or 8 weeks. … This is a period of watchful thinking not watchful waiting. Mish: That is disingenuous. Nobody is saying the markets didn’t react. What we are saying is the Fed is ignoring the markets and doing what it wants. Explain the Pause Q:Edward Lawrence, Fox News: What specifically in your mind would be the argument for a pause today? A: I wouldn’t characterize what we did today as anything like a pause. I would characterize what we did as a rigorous review of the economic situation. I would characterize what we did as a review of the big hard questions. And I characterize it as a view of what our own homework is. If you were to force a description of this as a pause, I would say financial market prices would take the other side of that. The financial markets in this intermeeting period did not pause. They reacted to the inflation data in one direction, strong economic growth in the other direction. MIsh: A pause by any other name is a pause. A Disingenuous Warsh I watched the video live and I replayed it again to capture the above highlights. What stands out isn’t Warsh’s refusal to answer questions. Rather, it’s is the convolutions he went through on multiple occasions to explain how a pause isn’t a pause. The irony is the Fed once again is ignoring market signals, just as it always does. Instead of transitory nonsense, we have nonsense on how and why a pause isn’t a pause. Warsh says this is watchful thinking not watchful waiting. But thinking instead of doing is why we have five years of high inflation. How Does the Fed Maintain its Target Rate? When the FOMC sets or changes the target range for the federal funds rate, the Fed primarily moves two administered rates in lockstep: - Interest on Reserve Balances (IORB) — the rate paid to banks on their reserves at the Fed (the main floor tool). - Overnight Reverse Repo (ON RRP) rate — the rate offered to a wider set of money-market participants (the supplementary floor). These ceiling tools, backed by an ample supply of reserves, keep the market federal funds rate inside the target range. Balance-Sheet Consequence Because the Fed has chosen an ample-reserves framework, it must keep the quantity of reserves large enough that ordinary fluctuations do not push the system into scarcity causing higher rates. The result is a Fed balance sheet that ~$6.7 trillion and trending higher to maintain the “ample” condition. Under the current rules and bank preferences, keeping reserves ample requires net asset purchases and a rising (or at least non-permanently-contracting) balance sheet over time. The reasons may be different, but an expanding balance sheet is synonymous with QE. Warsh Stated Preferences Warsh wants to eliminate the balance sheet and eliminate QE. Well, good luck with that when the Fed has set rates lower than where the market thinks they should be. This is why Warsh went to great lengths today disingenuously answer two questions on market views and how a pause isn’t a pause. Unfortunately, no one pinned Warsh on QE or balance sheet issues today. Regardless, a bond market revolt will eventually force the Fed’s hand, especially given the fact Warsh does not want forward guidance to try to steer the market to the Fed’s view. The next month will be very interesting if inflation data at all disappoints. Meanwhile, Trump is doing everything he can with tariffs and Mideast policy to drive prices higher. Related Posts July 29, 2026: The Fed Holds Interest Rates Steady with Three Dissents for a Hike With a very short statement the Fed remains on pause. July 27, 2026: How Much Credit Growth Does It Take to Expand Real GDP? Here’s the shocking answer in several pictures. Everything is set to blow up with a September rate hike less than two months before the election. This is not a problem. We are in a Trump Administration where up is down and black is white, &c. Will this man prove to be a reincarnation of Rudolf von Havenstein? Or will he be like one of Marie Antoinette’s finance ministers? Does anyone know whether they lost their heads along with her? I suppose it’s too much to hope that he will turn out to be a reincarnation of Hjalmar Schacht. Meet the new boss. Same as the old boss. Clearly, Its quite a shock to the system to actually let markets start setting interest rates Its interesting that even though rates have tightened across the board because Warsh basically said the Fed is standing aside to see what happens , and this is what everyone wants, people are still unhappy because “mommy fed” is not telling them its ok. Pathetic This is a market driven economy not the USSR The 30 year bond at over 5% is one thing but treasuries at market rates starts to move the interest on government debt higher into the stratosphere. Also the risk of recession increases as rates go higher. We are on the cusp of something ugly here. They are dammed either way. I think I would rather err on the side of lower rates. I agree, its a no win situation, since we’ve had nothing but fed central planning since GFC and now its a mess. I personally like that he’s not providing forward guidance even if he’s full of shit about rate justifications and serving his master, which they all do. At least its one step closer market pricing. And one step closer to unwinding this overinflated mess I’ve always been of the opinion that the FED should just post the vote and how each governor voted. No press conference. Let everyone (the market) read the tea-leaves from the actual vote. He might as well have taken a page out of the Fauci playbook and plead the 5th throughout–same outcome. I was very impressed. He could be the next Pete Hegseth. Does he have enough tattoos? Need to check his testosterone. meanwhile: Actor and filmmaker Ben McKenzie on crypto fraud: “When it comes to potential crypto crimes, the call is coming from inside the White House.” https://x.com/cspan/status/2081855309413331264 Crypto = A finite supply of nothing knowing the origin of the central bank, why would anyone believe anything, that any chairman of the central bank, ever spouted in public. everyone needs to read, “the creature from jekyll island” . i still LOL whenever i walk past the NYFED when i’m downtown. greatest scam in the empire. The problems are still the problems, many exogenous to what the Fed can tweak. The Fed can tweak the existing tools, to a point, but the long bond and the circumstances are what they are. Word salad. Maybe they should get Kamala on board! People who show up with a mystical halo are bound to disappoint. The whole curfuffle over FED funds rate changes is just Ptolemaic cosmologists insisting that epicycles are the way to explain the anomalies of planetary movements in a paradigm of geo-centrism. Correctly change the paradigm and the anomalies resolve and the new paradigm makes things work as they should without all of the pain the current paradigm creates and enforces…and all of the incredible twisting and turning of logic to try to explain and justify a falsehood. Implement a 50% Discount/Rebate at the various points of retail sale and inflation is mathematically transformed into deflation ($100 worth of groceries can be bought for only $50 and yet with the rebate aspect of the policy the merchant gets their full payment of $100. The merchant also gets a potential doubling of demand for every one of their goods and services that they can compete for on price and with innovation which are economic virtues instead of simply inflating which is somewhere between an economic misdemeanor and a first degree felony. Mish I admire your objectivity about the FED and your photography is lovely, but your clinging to libertarian economic theory in the face of my more than decade long posting of the undeniable mathematical and economic effects of this single policy is telling. The socialist obsession with raising taxes is an equivalent orthodox stupidity. Instead give every individual and commercial agent an account at the central bank and mandate that the FED distribute the rebate aspect of the 50% Discount/Rebate and the Federal Reserve becomes the General Reserve and the equally stubborn orthodoxies of socialism and capitalism becomes an economy of grace as in monetary gifting AKA Wisdomics-Gracenomics. Somebody gets it ! Yeah, but not this guy Just keep looking at the personal and temporal universe economic effects of the policy until the orthodoxies you’re blinded by dissolve and you come directly into present time. So, mathematically, the Fed doubles the money supply with every transaction. Your concept is not even close to credible. Just keep looking at the personal and temporal universe economic effects of the policy until the orthodoxies you’re blinded by dissolve and you come directly into present time. Tough job in joining the right thing while being pressured by a deranged criminal. Warsh’s presentation might have been worse than Powells. It had an almost evangelical feel to it. But I knew he wouldn’ cut. Inflation is the only Fed target. It makes sense, because the rich mostly carry assets that move up with inflation. Only little people suffer from inflation. And yes, I heard myself muttering blah, blah blah. “I’ll take ‘World-class Bullshiite Artists’ for $40 trillion, Alex.” Crime Pays?