Key facts
- Federal Reserve Chair Kevin Warsh affirmed the central bank's independence and commitment to fighting inflation.
- Warsh's comments suggest a potential divergence from President Donald Trump's calls for interest rate cuts.
- Global central bankers view Warsh as a potential ally, easing fears of a Fed retreat from international coordination.
- The unemployment rate decreased to 4.2%, with steady average hourly earnings.
- Warsh indicated that the Fed's balance sheet should be shrunk gradually and communicated well.
Federal Reserve Chair Kevin Warsh signaled the central bank's commitment to independence and its focus on inflation during a gathering of global central bankers in Sintra, Portugal. His remarks suggest a potential divergence from President Donald Trump's calls for interest rate cuts.
Warsh affirmed that the Fed would remain independent and prioritize fighting inflation, indicating that any expectations of tolerating inflation above its 2% target would be disappointed. He also addressed the central bank's balance sheet, noting that while he believes it should be shrunk, any policy changes would be gradual and well-communicated.
Central bankers from around the world viewed Warsh's engagement as a positive sign, easing fears that a Fed led by a Trump appointee might be more susceptible to White House pressure or less committed to international coordination. Warsh's communication style, favoring simpler messaging and skepticism towards forward guidance, appeared to align with a broader 'back to basics' theme among central banks.
During discussions, Warsh engaged collegially with counterparts including ECB President Christine Lagarde, Bank of England Governor Andrew Bailey, and Bank of Canada Governor Tiff Macklem, underscoring a shared focus on independence and policy communication despite differing approaches to forward guidance.