A Fed divided

You’re not the only one arguing with your siblings over whose turn it is to do the dishes—the Fed is having its own “family fight,” according to Fed Chair Kevin Warsh. The difference is the whole economy doesn’t hinge on who wins yours.

Today, the central bank voted to keep rates steady at their current rate of 3.5% to 3.75%. But the decision was far from unanimous: Three out of nine policymakers dissented with the Fed’s decision, while none recommended a rate cut. The split underscored how the central bank is slowly turning more and more aggressive in combating inflation, which has now run above its 2% target for five straight years.

The Fed decision wasn’t a huge surprise to investors, but wasn’t a foregone conclusion either. Inflation fell 0.4% in June, a milder reading than expected. But consumers are still feeling freaked out, and a flareup of geopolitical tensions in the Middle East is pushing oil prices higher once again.

Now, investors are looking to September. The big question is whether the Fed hawks will be able to get the rest of the committee on their side. Right now, traders are pricing in a 53% chance the Fed hikes rates 0.25% at its next meeting.

“September pricing has also moderated from fully priced to roughly 75%, however I would still characterize the outcome as a hawkish hold on balance: the statement was essentially unchanged, growth and inflation language remained firm, and the three dissents in favor of a hike underscore that a meaningful faction of the Committee remains concerned about inflation,” explained Janus Henderson portfolio manager Daniel Siluk in a note today.

It’s Warsh o’clock

Investors are still getting used to what a new Fed looks like under Kevin Warsh. This was the Trump-appointed chair’s second FOMC meeting and second press conference. Similar to his last appearance in June, Warsh kept his comments succinct and answers to reporters reserved, opting for a shorter statement.

“I asked for a good family fight, and I got one,” Warsh said at the press conference. “Most of our discussions were on the big questions that matter to the conduct of monetary policy.” (We’d sure hope so).

Warsh also made sure to hedge the Fed’s decision. “I wouldn’t characterize what we did as anything like a pause,” he said. “I would characterize what we did as a rigorous review of the economic situation.”

That’s sort of like when you tell your boss you didn’t just “make a PowerPoint”—you bravely explored business synergy.—LB