Warsh's Rate Hike Dilemma: Politics, Task Forces, and Personal Reservations

Federal Reserve Chairman Kevin Warsh is unlikely to raise interest rates at this week's Fed meeting, for at least three reasons. First, he personally doesn't seem to buy the arguments for hikes. Second, raising rates would undermine the outcomes of his task forces. And, third, a rate increase risks putting him on the wrong side of some uncomfortable politics with the Trump administration.

Warsh faces a divided Federal Open Market Committee, with perhaps three or four people out of a dozen voting members prepared to call for immediate rate increases. Investors see a nearly 40% chance of a rate increase this week, according to CME FedWatch.

Warsh has committed to ending 'forward guidance,' a practice of precommitting the Fed to a particular course on interest rates. He has given some clues to his so-called reaction function, or how he and the Fed more broadly interpret and respond to incoming data.