Federal Reserve Policy Analysis

“There is no soft inflation target, there is no soft implicit target-not on this Committee's watch. There is only a target, and it is 2 percent.”

Warsh is directly attacking the market's revealed-preference belief that the Fed quietly tolerates inflation above 2%. Re-anchoring expectations is the precondition he is laying down before tightening - treat it as the rhetorical groundwork for a hike, not as mere rhetoric.

“Any central banker, when he or she sees underlying inflation moving higher, he or she is more inclined to tighten policy. Again, when you've achieved the other side of your mandate, and you see underlying inflation falling, he's more inclined to loosen policy. That's my reaction function.”

With formal forward guidance abolished, this is the only reaction function traders have. It makes the September decision a near-mechanical function of the July and August inflation prints - watch core PCE on ~28 August above all else.

“I wouldn't characterize what we did as anything like a pause. I would characterize what we did as a rigorous review of the economic situation... this is a period of watchful thinking, not watchful waiting.”

Explicitly refuses the neutral-hold reading. The Committee sees itself as converging on a tightening decision rather than sitting still, which is why a hold produced three hike dissents rather than none.

“If inflation continues to be elevated through the forecast period, interest rates could well be part of that solution. But I wouldn't say it's in isolation.”

The closest thing to an explicit hike condition. The hedge matters too - Warsh sees rates as one of three prongs alongside expectations management and the balance sheet, so a hike is not automatic even if inflation stays high.

“Several participants favored an increase of 25 basis points in the target range at this meeting. These participants remarked that price pressures appeared broad based and judged that the Committee should adopt a more restrictive policy stance.”

The minutes reveal the hawkish bloc is larger than the three formal dissenters. 'Several' favouring a hike on top of a 9-3 vote means September needs only a modest shift to flip.

“Many participants assessed that policy tightening would likely be necessary if inflation did not decline.”

This is the closest thing to formal forward guidance the Warsh Fed has produced. It converts the September decision into a conditional near-commitment: absent a downside inflation surprise, the default is a hike.

“Some participants commented that financial conditions might not currently be sufficiently restrictive to facilitate a return of inflation to 2 percent.”

Directly contradicts Warsh's press-conference argument that the bond market had already delivered the tightening. The Committee is not united behind the 'markets did it for us' rationale for waiting.

“A few of the participants who favored raising the target range for the federal funds rate at this meeting judged that doing so would likely help forestall the need for a steeper and potentially more costly sequence of tightening moves at a later stage.”

The hawks are making a pre-emption argument, not a level argument. If inflation prints firm, the risk is not one 25bp hike but the start of a sequence.