As part of our initiative to bring timely market information to California public agencies, CalTRUST Chief Executive Officer Laura Labanieh Kitson had a brief Q&A with State Street Investment Management’s Vice President, Portfolio Strategist Will Goldthwait to reflect on this week’s Federal Reserve meeting:
The Fed Holds, and Warsh Has Plenty to Say
Laura: What did the Fed do? Or more accurately, what didn’t it do?
Will: The Fed held the federal funds target range at 3.75%-4.00%, deciding that September’s 25-basis-point hike deserved some time to marinate. The vote was 10-2, with Lisa Cook and Beth Hammack preferring another hike, so apparently “doing nothing” now requires dissent. More importantly, the Fed upgraded economic growth from “solid” to “strong,”while inflation remains elevated. Translation: the economy looks good, inflation doesn’t, and the Fed has decided that staring at both for another six weeks constitutes monetary policy.
Laura: If growth is strong and inflation is still too high, why not raise rates again?
Will: Because the September rate hike appears to be doing some of the Fed’s work already. Warsh said financial and credit conditions have tightened for some businesses and households, and investors are becoming more discerning about where they put their money. He stopped short of calling financial conditions “tight,” however, which is Fed-speak for: we tightened them, they tightened, but please don’t get carried away. For now, the Committee wants more data before prescribing another dose of monetary medicine.
Laura: How does Warsh see the economy?
Will: Pretty darn good. First-half GDP growth was revised from 1.8% to 2.4%, third-quarter growth appears to have accelerated further, business investment is booming, unemployment remains low and jobless claims are running at extraordinarily low levels. Warsh also pushed back against the notion that strong growth automatically creates inflation, pointing instead toward improving productivity. That is important: this Fed seems more willing to let the economy run without immediately chasing it down the street carrying a rate hike.
Laura: So, what’s the problem?
Will: Inflation. Still. After nearly six years above the Fed’s objective, Warsh made clear that price stability dominated the Committee’s discussion and that 2% still means 2%, not 2%-ish, 2%-adjacent or “close enough for government work.” The two hawkish dissents reinforce that message: the debate isn’t about when the Fed cuts rates, but whether holding them where they are is restrictive enough. Anyone waiting for the Fed to declare victory on inflation probably shouldn’t order the champagne just yet.
Laura: What’s going on with AI or SI (you decide), investment and productivity?
Will: Warsh seems genuinely intrigued by the possibility that something important is happening on the supply side of the economy. High-tech investment is leading a surge in capital spending, but investment is broadening beyond technology, while productivity appears to be improving. If productivity really has shifted higher, the economy may be capable of growing faster without generating the inflation the Fed would historically expect. AI may eventually destroy civilization, steal all our jobs and write the next FOMC statement, but for now the Fed seems reasonably pleased with what it is doing to productivity.
Laura: What’s different about a Warsh press conference?
Will: We’re beginning to see Warsh put considerably more structure around both the FOMC and the press conference itself. He appears comfortable discussing economics in detail and answering substantive questions directly, but noticeably less interested in letting political questions or questions he regards as unhelpful hijack the discussion. There is an emerging sense of: good question, let’s talk economics; political question, nice try, next. Given that Fed press conferences can occasionally resemble 45 minutes of reporters inventing increasingly creative ways to ask the same question, this may not be a terrible development.
That same instinct is showing up institutionally. Beginning in 2027, one FOMC meeting will be devoted to broader monetary-policy strategy rather than a rate decision, and Warsh expects two such strategy meetings in 2028. The message seems to be that the FOMC should occasionally discuss monetary policy without immediately being asked whether that means 25 basis points in December.
Source: Fed, Bloomberg, SSIM, WSJ, Reuters, Economist, as of Oct 28, 2026