Fed Chair Kevin Warsh defends quarter-point hike as stocks reverse gains

  • Federal Reserve Chair Kevin Warsh defended Wednesday's quarter-point interest-rate increase.
  • The 2-year Treasury yield rose roughly 11 basis points to 4.71%.
  • Warsh cited growth, capital competition and geopolitics behind higher long-term yields since July.

Federal Reserve Chair Kevin Warsh used his first post-hike press conference to reinforce the central bank's focus on inflation, saying the quarter-point increase demonstrated its seriousness about returning inflation to the price-stability objective on a timelier basis. He declined to signal whether Wednesday's move would begin a series of rate increases, saying he was not in the forward guidance business. Warsh said the decision reflected his view, first presented at Jackson Hole, that monetary policy had not been restrictive and that broad financial conditions were not tight. The hike therefore removed some accommodation rather than moving policy into restrictive territory. Warsh also declined to discuss President Donald Trump, who has repeatedly called for lower rates, emphasizing that Federal Reserve independence was a two-way street and that the central bank would stay in its lane on trade and fiscal policy. He rejected the idea that a 90% market-implied probability had determined the decision. Warsh attributed the rise in long-term Treasury yields since the July meeting to a stronger economy, competition for capital from hyperscalers financing the capital expenditure boom, and geopolitics. Markets subsequently reversed their initial gains: by 3:10 p.m. ET, the S&P 500 was down 0.8% from its pre-meeting level, while the 2-year Treasury yield climbed roughly 11 basis points (0.11 percentage point) to 4.71%. The 10-year yield moved back above 5%, gold fell 1.4% to $4,285.56 an ounce, the dollar index rose 0.5% to 99.85, and Bitcoin gained 0.9% to $76,020.

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