Topline
The Federal Reserve on Wednesday voted to hold interest rates within their current range, as central bank officials pointed to a hike sometime this year under newly appointed chair Kevin Warsh.
Trump signaled he would allow his new Federal Reserve chair to “do what he wants to do.”
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Key Facts
The Federal Open Market Committee voted unanimously to hold interest rates between 3.5% and 3.75%, and nine of the panel’s 18 officials favored at least one interest rate hike this year.
The projection for an interest rate hike appeared to be missing one submission, and Warsh confirmed in a press conference that he refrained from making any projections of his own.
The panel’s statement outlining its decision was pared down under Warsh: The 341-word decision following the central bank’s last meeting under former chair Jerome Powell in April was more than 60% longer than the 130-word note released under Warsh.
In its latest statement, the Fed said economic activity was expanding at a “solid pace despite elevated uncertainty,” noting that job market growth has “kept pace with the workforce” while inflation remains elevated.
Fed’s first full statement under warsh, in full
“The Federal Open Market Committee approved the following statement for release by a 12–0 vote: The committee decided to maintain the target range for the federal funds rate at 3.5% to 3.75%, in support of the Federal Reserve’s dual mandate. The committee reaffirmed its policy of maintaining ample reserves in the banking system. Economic activity is expanding at a solid pace despite elevated uncertainty that owes, in part, to the conflict in the Middle East. Productivity growth and capital investment are strong. Job gains have kept pace with the workforce, and the unemployment rate has changed little. Inflation remains elevated relative to the committee’s 2% goal, in part reflecting supply shocks that have driven price increases in certain sectors, including energy. The committee will deliver price stability.”
what to watch for
Several analysts believe the Federal Reserve will withhold its “dot plot,” a graph outlining the central bank’s policymaking decisions, as Warsh has criticized the plot for limiting the Fed’s decision-making. “The Fed tells the whole world what their dots are going to be, what their forecasts are going to be,” Warsh said during his confirmation hearing in April, arguing “incremental deliberation can keep the central bank from compounding its errors.” In a note, Goldman Sachs analyst David Mericle wrote that the firm assumes that “Warsh will not submit dots in light of his past criticism of forward guidance, but we are not sure.”
what has kevin warsh said about interest rates?
Warsh told the Senate Banking Committee in April that President Donald Trump never asked him to commit to interest rate cuts and that Trump “didn’t demand it.”Adita Bhave, Bank of America Securities’ head of U.S. economics, wrote in a note earlier this year that Warsh’s outlook for interest rates was “much more consistent with an extended hold than additional cuts.” Trump, in a reversal from earlier comments that he would be disappointed if Warsh did not cut interest rates, said last month he would let Warsh “do what he wants to do.” During the FOMC’s meeting in April, a “majority” of Federal Reserve officials stressed that a rate hike may be appropriate if inflation persisted above the central bank’s 2% goal. A majority stated there is an “increased risk” inflation will take longer to return below that threshold than previously expected.
key background
Former Fed governor Warsh opens his term leading the central bank following a contentious nomination process and a surge in inflation that will likely deter officials from lowering interest rates. Consumer prices increased 4.2% annually in May, marking the first time inflation crossed the 4% annual rate since May 2023 and the highest rate since April 2023. A boost in inflation thanks to soaring oil and gas prices brought on by the Iran war, as well as better-than-expected employment data for May, pushed markets to favor an interest rate hike by December at nearly 60% odds. The meeting will also feature Powell, the former Fed chair who was criticized by Trump for being “too slow” to reduce rates, as a Fed governor. Powell said during the FOMC’s latest meeting he would remain as governor with two years left on his term and stay for a “period of time to be determined.”