Morgan Stanley Asks The "Key Question": How Does Warsh Intend To Deliver Price Stability

By Seth Carpenter, Morgan Stanley chief global economist

The Federal Reserve raised its policy rate by 25bp this week. The market had priced that move and more, so what matters now is less what happened, but why it happened … and what happens next vis-à-vis inflation and the reaction function. We had spent much of the year arguing that the Fed was likely to remain on hold because inflation was moving in the right direction, and we had assumed Chair Warsh preferred not to raise interest rates, if possible.