While President Donald Trump had promised to lower prices on his watch, the combined impact of his global import tariffs, an energy shock following the start of the US-Israeli war with Iran, and capital spending from the artificial intelligence boom has kept price pressures intense enough that the Fed felt it needed to raise its benchmark overnight interest rate by a quarter of a percentage point on Wednesday, putting it into the 3.75-to-four-per-cent range.
New policy projections showed 16 of 18 policymakers anticipate at least one more quarter-percentage-point hike by the end of this year, with only two of them seeing rates remaining stable from here. Warsh apparently again did not submit a rate projection.
It's the first policy shift under the new Fed chief, who took office in late May after being selected by Trump with an expectation that he would cut rates.
The Fed's new policy statement and economic projections, to the contrary, show a central bank opening the door on tighter monetary policy through next year, with the policy rate rising to the four-to-4.25-per-cent range by the end of this year and ending 2027 at the same level.
"Today's policy action will support a timelier return to the Committee's two per cent goal," the central bank said in its policy statement after the end of a two-day meeting.
While the statement withheld any forward guidance about coming policy decisions, as is Warsh's preference, the decision is likely to ease doubts that the Fed chief would hold off on tighter policy out of deference to Trump, a lingering question during his first months in office.
The statement dropped a previous reference attributing current elevated inflation to "supply shocks" particularly in the energy sector, a nod to concerns among policymakers, including Warsh, that price pressures were too broad for comfort.
Warsh is scheduled to hold a press conference to elaborate on the decision.
The rate increase was announced less than two months ahead of midterm elections that will determine whether Trump's Republicans maintain control of Congress for the final two years of his presidency.
The Republicans are facing an uphill battle with voters angry about petrol prices that are about a third higher than a year ago and interest rates on home mortgages that have been rising steadily this year. The average rate on a 30-year fixed-rate mortgage is approaching seven per cent.
Policymakers' new quarterly economic projections marked up estimates of inflation, as measured by the Personal Consumption Expenditures Price Index, to 3.7 per cent versus the 3.6 per cent projected at the Fed's June meeting. Inflation is not projected to return to the two per cent target until 2029, a year later than previously expected.
Economic growth was marked up slightly from 2.2 per cent to 2.3 per cent, while the unemployment rate is seen ending the year at 4.1 per cent, versus the 4.3 per cent projected in June.
Warsh has pledged to lower inflation back to two per cent "clearly and at sufficient speed" by raising rates as needed.
