What the Fed Said, What It Meant, and What It Wouldn't Say

By the Fed Chair's own count, inflation has run above the Fed's 2% goal for close to six years. On Wednesday the Fed described the economy as "strong." Two of the 12 officials who vote on interest rates wanted to raise them. And the Fed held its rate where it was, at 3.75% to 4%.

Then its Chair, Kevin Warsh, told reporters he doesn't believe in hinting at the Fed's next move. Central banks have long done exactly that, so markets aren't caught off guard. Warsh says he won't, except in a crisis. He also doesn't file a forecast of where rates should go, though the Fed's 18 other policymakers do.

That is the real news from Wednesday. Warsh's Fed explains how it will decide, at length and in its own vocabulary. It won't tell you what it will decide. To know what comes next, you have to learn its language and watch what it's watching.

Here is what the Fed said, what it meant, and what it wouldn't say.

What did the Fed decide?

The Fed held the federal funds rate, what banks charge each other for overnight loans, at 3.75% to 4%. It steers the rate into that range mainly by paying banks 3.90% on money they leave at the Fed. The actual rate has been sitting at 3.88%.

The decision belongs to the Federal Open Market Committee's 12 voters: the seven governors in Washington, the president of the New York Fed, and four of the other 11 regional Fed presidents, who take turns. The Chair runs the meeting but casts one vote.

The vote was 10 to 2. Lisa Cook, one of the governors, and Beth Hammack, president of the Cleveland Fed, wanted to raise the range by a quarter of a percentage point. We could not find a published explanation from either as of Sunday.

It was the second time in three meetings that the Fed held while some officials pushed for more. In July it held 9 to 3, with Hammack, Neel Kashkari of Minneapolis and Lorie Logan of Dallas wanting an increase. In September it raised rates 12 to 0. At all three meetings, every dissent was a vote for higher rates. As far as the votes show, the committee is split over how fast, not which way.

What changed in the words?

The statement is a few short paragraphs, and it changes slowly, so a changed word is usually deliberate. Three things are different from September.

"Solid" became "strong." The Fed now describes the economy as stronger than it did six weeks ago. A stronger economy can handle higher interest rates with less risk of recession, which is why the word can read as a hint toward another increase. Adam Button of the market news site InvestingLive wrote that if anything in the statement was a "hawkish signal," Wall Street shorthand for leaning toward higher rates, it was that word.

"Today's policy action will support" became "the accumulation of more information will help." In September the Fed said its increase would help bring inflation down. In October it said more information will help it decide what to do next. That points to waiting, not to a direction.

The vote went from 12 to 0 to 10 to 2.

What didn't change matters too. "Inflation remains elevated" is word-for-word the same. By the Fed's preferred measure, prices in September were 3.6% higher than a year earlier, or 3.1% leaving out food and energy, against a goal of 2%.

So why wait?

That was the first question Warsh got. Colby Smith of The New York Times noted "essentially no progress toward the 2 percent inflation target" and asked: "So why not just raise rates today?"

His answer, translated, came in three parts.

The last increase is still working. The committee's "overwhelming judgment," Warsh said, is that its approach "is starting to work some, but there's no firm conclusions." He pointed to market measures of expected inflation, including prices in inflation swaps, a market where investors trade on future inflation, and said they are "going in the right way." He acknowledged that people's expectations for the very near term have risen, because they see higher prices at the gas pump.

More evidence is coming. Fighting inflation "is not about some fixed individual date on a calendar," he said, and the weeks before the December meeting will bring a lot of new data.

A strong economy isn't necessarily an inflationary one. This is the heart of his case. Asked by Howard Schneider of Reuters how much strong demand is adding to inflation, Warsh said: "My judgement is we have seen an improvement in productivity; we can't measure it precisely." If workers and machines produce more each hour, the economy can grow faster without pushing prices up. "Economic growth is higher," he said, "but that doesn't tell me that economic growth is somehow causing inflation and making our job harder."

Note the hedges: "my judgement," "can't measure it precisely." It's an argument, not a finding. If he's wrong, strong growth could keep pushing prices up, and the case for the increase the two dissenters wanted would get stronger. Nor did he claim victory: "you haven't achieved price stability, you're right about that. But we're working on it."

How to read Warsh's Fed

Warsh has his own vocabulary, and the press conference was full of it. A short phrasebook:

"Interrogating reality." Checking what is actually happening in the economy, "looking out the window," in his words, before deciding. It's why he ties the next move to incoming data.

"New monetary medicine." His name for what the Fed has done since he became Chair five months ago. It recommitted to the 2% target ("we own it"). It took responsibility, with "no blaming others." He laid out how the Fed thinks policy works in a speech at Jackson Hole, the Fed's annual summer conference. And then it acted.

"Removed a dose of accommodation." Raised interest rates. That's how he described September's increase.

"The appropriate protocol." The right policy setting. When he says the committee is working to "determine the appropriate protocol," he means it hasn't settled on one.

"Information rich." There is a lot of data coming before the next meeting, and he expects it to bring "more clarity."

"Tightening financial conditions." Borrowing getting harder and more expensive across the economy, in markets as well as at banks. Warsh called it "the dominant means in which this policy is going to be put into practice," and said conditions had tightened "a bit" since September. "That tells me that policy is working."

"The left side of the decimal point." Big questions over long time horizons. It's his reason for turning some future meetings into strategy sessions with no rate decision: one in 2027, and he expects two in 2028. The Fed will still meet eight times a year.

What wouldn't he say?

Two things markets have long leaned on.

The first is a hint. Chris Rugaber of the Associated Press asked whether there was still broad support for another increase this year. Warsh said: "I don't believe in forward guidance absent exigent circumstances, absent a crisis." Forward guidance is the practice of signaling a central bank's next move in advance. In ordinary times, he said, "I don't believe in it. I don't favor it. I also don't believe in prejudging meetings."

The second is his own forecast. Four times a year, the Fed's governors and regional presidents each file a projection of where interest rates should go, published as dots on a chart known as the dot plot. In September the middle projection pointed to one more quarter-point increase before the end of 2026, and the only meeting left this year is Dec. 8–9. But the Chair isn't on that chart. "I don't submit a dot," Warsh told Steve Liesman. "I don't plan on submitting a dot, but the 18 of them do."

So the most influential official on the committee offers no forecast and no hint.

What did markets hear?

Markets answered the question Warsh wouldn't. In the futures market, where traders bet on where the Fed's rate is heading, prices on Thursday morning implied roughly an 80% chance of an increase in December. That's according to CME's FedWatch tool, as reported by Fox Business. It was about where the bet stood before the meeting, so the decision didn't change the market's expectation much.

The government's borrowing costs tell the same story. An investor lending to the government for two years wants roughly what they expect overnight rates to average over that time. On Wednesday the two-year Treasury yield was 4.67%, well above the Fed's range, largely because investors expect rates to rise.

Day-to-day moves are harder to read. On Wednesday the two-year yield dipped 0.03 percentage points and the 10-year rose 0.06 to 5.05%, by the Treasury's daily readings. On Thursday came new figures on growth and inflation, and by Friday the two-year was at 4.56% and the 10-year at 4.94%. There's no clean way to tell how much of that came from the Fed.

The commentary we found was measured. "The Fed is taking a wait-and-see approach, and I think that makes sense given where we are in the cycle," Andrew Davis of Bryn Mawr Trust told CNBC.

What it means for borrowing

These are the financial conditions Warsh is talking about. A 30-year mortgage tends to move with the 10-year Treasury yield, plus a margin for the lender's costs and risks. Company bonds start from the government's rate and add a charge for the company's own risk. Since September, Warsh said, investors have become choosier, and "credit spreads for certain assets" have widened. That is, some borrowers now pay more over the government's rate than they did. "Interest rates get in the cracks," he said, "interest rates affect directly or indirectly, almost everything."

What Wednesday means depends on the kind of borrowing:

• Credit cards, home-equity lines and many business loans typically have rates that move when the Fed's rate moves. Wednesday changed nothing for them. A December increase would.
• New mortgages and company bonds are priced off longer-term rates, which already build in some of what investors expect the Fed to do.
• Existing fixed-rate loans don't change.
• Savings. Money-market funds earn roughly what overnight rates pay. Banks set their own savings rates and can change them whenever they like.

The part nobody explains

For years, reading the Fed meant listening for hints and studying the dot plot. Warsh has switched off the first and taken himself out of the second. What he offers instead is a method: explain how the committee decides, then "interrogate reality" and let the evidence settle it.

That changes what a Fed decision is. It is less a promise about the future than a report on how the committee is weighing the evidence. It also hands readers a job the Fed used to do for them: working out what comes next from the same evidence the committee is watching.

What to watch

Watch what the Fed is watching:

• Friday, Nov. 6: the October jobs report. Strong hiring would add to the case for an increase.
• Monday, Nov. 16: a public hearing on productivity and jobs, held by one of five task forces working for the Fed under Warsh. He plans to attend. It is the clearest window into the argument behind Wednesday's wait.
• Expected Wednesday, Nov. 18: the minutes of this meeting, three weeks after it, the Fed's usual timing. They are the first detailed account of the committee's discussion, beyond what the Chair said.
• Later in November: October's inflation reports.
• Dec. 8–9: the Fed's last meeting of the year, with a new set of projections. Watch whether two dissents become more, or fewer.

Under this Fed, that calendar is the closest thing you'll get to a hint.