Warsh to face spotlight as Federal Reserve likely to leave interest rates unchanged
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- The Federal Reserve held its key rate unchanged Wednesday, but nine of 18 policymakers signaled support for rate hikes in 2026, with six backing two or more quarter-point increases — a sharp reversal from March's projection of one cut.
- New Chair Kevin Warsh dropped language suggesting the next move would be a rate cut and declared forward guidance "not well suited to the current policy conjuncture," breaking from a practice used by Fed chairs since Ben Bernanke.
- Warsh is forming five task forces to examine Fed communications, data sources, and inflation frameworks; KPMG chief economist Diane Swonk said he is "not trying to change it by command" but seeking buy-in.
- Markets reacted sharply: stock prices fell and bond yields rose after the Fed's statement, with Deutsche Bank chief U.S. economist Matthew Luzzetti saying "the risk that they might need to raise rates has clearly risen."
- Trump publicly backed the decision from the G7 in France, telling reporters: "We have a very good guy over there now so I'm guided by what he wants to do."
- Inflation has accelerated to a three-year high of 4.2% since the Iran war began Feb. 28, and employers added 172,000 jobs in May — the third straight month of solid gains — removing a key rationale for rate cuts.
Why it matters: Trump installed Warsh expecting rate cuts, but the new chair's hawkish debut — dropping forward guidance and half of policymakers backing hikes — strips the White House of its anticipated monetary tailwind. With 4.2% inflation, 172,000 May jobs added, and 4.2% inflation persisting even outside war-driven gas costs, the Fed's next move is now more likely tightening than easing.
