Federal Reserve holds rates steady but signals possible hike before year’s end

Kevin Warsh speaks to reporters after the meeting on Wednesday. Photograph: Will Oliver/EPA View image in fullscreen Kevin Warsh speaks to reporters after the meeting on Wednesday. Photograph: Will Oliver/EPA Federal Reserve holds rates steady but signals possible hike before year’s end Open markets committee says ‘economic activity is expanding at a solid pace’ in first meeting under new chair Kevin Warsh US stock markets dropped Wednesday afternoon after the Federal Reserve left interest rates unchanged and signaled a possible rate hike before the end of the year. The Fed was widely expected to keep rates at a range of 3.5% to 3.75%, where it has remained since December. The decision was unanimously supported by the Fed’s voting committee. “Economic activity is expanding at a solid pace despite elevated uncertainty that owes, in part, to the conflict in the Middle East,” the Fed’s open market committee said in the statement. The Dow closed 500 points lower, and the S&P 500 and Nasdaq down over 1.2% each, soon after the announcement. This was the first meeting overseen by Kevin Warsh, who took over as Fed chair in May and has implied he wants to tighten the Fed’s public communications on future guidance. The committee’s monthly policy statement was notably shorter compared to previous statements. The statement acknowledged that “inflation remains elevated relative to the committee’s 2% goal, in part reflecting supply shocks that have driven price increases in certain sectors, including energy” and said the central bank “will deliver price stability”. The Fed also released a slate of projections illustrating when individual officials predict rate changes will occur. Nine members projected at least one rate increase this year. Warsh confirmed he was the sole board member who did not contribute to the projections. The projections mark a U-turn in outlook from just a few months ago: the last time Fed released projections, in March, 12 of the 19 officials projected at least one rate cut by the end of this year. In his first press conference as chair, Warsh announced plans to overhaul the central bank, particularly its public communications. Warsh said he will create five new task forces that will assess the “broad conduct of monetary policy”, including communications, the Fed’s balance sheet, data, productivity and jobs. The groups will “examine current practice, consider alternatives, and ultimately propose next steps for policy-maker consideration”, with Warsh noting that he will enlist “some of the very best minds, both inside and outside the economics profession” for the groups. One of the taskforces will reassess how the Fed communicates with the public more broadly, including the Fed’s news conferences, dot-graph projections and meeting transcripts and minutes. “I don’t want to prejudge the outcomes but I’m open-minded about what they could be,” he said. Warsh also emphasized his belief that the Fed’s monetary policy ‘“cannot have a very signif