The Fed chairman put the rise in market interest rates since the June meeting in the top decile of the last two decades, and called it a change for the better

Chairmen do not usually welcome a bond selloff.

The Federal Reserve has published the transcript of Chairman Warsh's opening statement at Wednesday's press conference, and the passage that stands apart from every other part of it concerns what happened to interest rates that the Committee does not set. Nominal and real yields, he said, are materially higher across the Treasury curve since the last meeting 42 days earlier. Some of the inter-meeting increases rank, on his description, around the top decile of the last two decades.

Then he explained why the Committee had not responded.

Market attention in the period between meetings, he said, centred on real data and real economic developments, prices reacted in real time to incoming information, and the reduction in forward guidance may have been a factor. Market participants, in his words, "are learning to play the ball, not the referee." He called this "a change for the better" and said the Fed is just getting started. He added that the central bank "need not always and everywhere be the center of attention," while stressing that the Committee's decisions matter a great deal and that it will not hesitate to act where necessary.

On the target

The statement is blunter on inflation than the FOMC statement it followed.

Five years of high inflation, Warsh said, have left some households, businesses and market professionals with a mistaken impression that the Fed's implicit inflation target was somehow above 2 percent. His answer to that was direct. There is no soft inflation target and no soft implicit target, not on this Committee's watch. There is only a target, and it is 2 percent.

He then set expectations on the clock. More than five years of above-target inflation cannot be cured in nine weeks, he said, nor by a single month of modest price decreases.

The decision itself was a 9 to 3 vote to hold the target range at 3-1/2 to 3-3/4 percent. Three voters preferred a quarter-point rise. This was Warsh's second meeting as chairman.

The four questions

Rather than describe the outlook, the statement lists what the Committee argued about.

The first was the effect of the past five years of high inflation on the current policy setting, which he put as whether the past has really passed. The second was whether shocks of different origin, pandemic supply chains, military conflicts, energy supply disruptions, higher tariff rates and the surge in artificial-intelligence investment, differ in their effects on output and employment. The third followed from it: the capital expenditure boom is driving up prices of memory and logic chips and the associated infrastructure, and the Committee asked whether that indicates a broader inflationary dynamic or whether those prices simply draw attention because they are easy to see. The fourth was how much accommodation the balance sheet is providing, given that interest rate policy is meant to be the primary instrument.

On the economy itself he was brief. Growth is solid, job gains have kept pace with the workforce, the unemployment rate has changed little, and inflation remains elevated relative to the 2 percent goal. The most striking feature, he said, is the strength of business investment, with four-quarter growth of nearly 20 percent in the artificial-intelligence-related category of high-technology equipment and software.

What the document is

Three pages, marked preliminary, and the opening statement only. The questions from the press room are not in it, and anything Warsh said in answer to them is not sourced here.