The Federal Reserve voted yesterday (wrongly, in my view) to keep interest rates where they are, despite persistent inflation above the Fed’s target. Once again, central bankers claim that reducing inflation is their end but do not supply any means to achieve that end.
Not all of them are useless, however. Of the twelve voting members on the Fed’s policy committee, three voted in dissent from the decision, favoring a quarter-percentage-point rate hike. All the dissenters were presidents of regional Federal Reserve banks, coincidentally the most politically insulated members of the committee. (There are five presidents total on the committee, sitting alongside the seven officials on the Fed’s board of governors. Presidents are chosen indirectly, whereas governors are appointed by the president and confirmed by the Senate.)
This vote outcome is a big deal. Before this week, three committee members had not dissented on a rate decision in the same direction since 2016.
At the last Fed meeting, it was considered an achievement for new chair Kevin Warsh to secure a unanimous vote for maintaining current rates. But inflation has not abated, and a few members have started to wonder what exactly they’re waiting around for. If monetary policy is currently too loose, and therefore inflation is too high, and the Federal Reserve is the only institution that can do anything about it, then . . . shouldn’t it do something to tighten monetary growth rather than nothing?
Until the Fed begins raising rates again, inflation will stay elevated. Three committee members already recognize this reality. Perhaps there will be more at the next meeting.