The Federal Reserve held rates steady, but officials have splintered over how the central bank should tackle elevated inflation.
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Three policymakers voted in favor of a quarter-point increase on Wednesday, suggesting that the debate in the coming months will center not on whether the central bank will lift borrowing costs, but when.
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Kevin M. Warsh faced a tough task at his second news conference as chairman of the Fed. He has made vanquishing inflation the sole barometer of his success as chairman and has been unequivocal that the central bank under his watch will deliver price stability. Mr. Warsh was forced on the defensive after the Fed decided to hold rates steady. He repeatedly tried to disabuse the public of the notion that the central bank was sitting idly. “There was nothing inertial about our discussions, our policy or our strategy,” he said.
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A recurring question was how Mr. Warsh plans to use the tools at the Fed’s disposal to get inflation under control. Those include interest rates and the balance sheet as well as the Fed’s ability to impact financial conditions, which capture the availability of credit across the economy. Mr. Warsh repeatedly mentioned that financial condition had tightened, which he said provided the Fed “some comfort that we’ve got the ability and capability to deliver.” Asked directly whether rate increases would help to tame inflation, he conceded that was one tool that “could well be part of that solution, but I wouldn’t say it’s in isolation.”
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The market moves after this meeting are notable. Long-dated Treasury yields have surged, suggesting there is some skepticism about Mr. Warsh’s willingness to follow through with action.
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