Fed Chair Kevin Warsh says inflation risks have eased, reaffirms 2% target

Federal Reserve Chair Kevin Warsh said on Wednesday that inflation risks have come down, reinforcing the central bank's 2% inflation target while declining to give any signal on the next policy move.

Speaking at the European Central Bank's annual forum in Sintra, Portugal, Warsh said inflation expectations and inflation risks have eased in recent weeks and that anyone expecting the Fed to tolerate inflation above 2% would be disappointed.

He also reiterated that the Fed will remain independent and will focus on price stability in the U.S., a message that lands amid continued political pressure for lower rates.

What Warsh said

Warsh described the inflation outlook as somewhat improved compared with the Fed's last meeting a few weeks ago. He did not say whether the next move in rates would be a hike, a hold or a cut.

That lack of forward guidance leaves traders and businesses still trying to price the path of U.S. interest rates into the summer and autumn.

Why it matters

The remarks matter because they can shift expectations for policy without changing any formal Fed decision. Warsh's defense of the 2% target suggests the central bank is not prepared to accept higher inflation as a new normal.

The comments also reinforce a less transparent, more data-dependent style of communication at a time when markets are watching for clues on how soon the Fed could move again.

What to watch next

Investors will be watching for any further remarks from Warsh or other Fed officials before the next policy meeting, as well as fresh economic data and energy-price moves that could alter the inflation outlook.

Market reaction to the stronger anti-inflation language and the absence of guidance will also help shape expectations for the July and September meetings.