Fed Holds Rates Under Warsh, Signals Hawkish Pivot
Get the Finance newsletter
Daily finance — markets, central banks, M&A, the prints that move money. Free.
- Federal Reserve expected to hold rates at 3.50%-3.75% on Wednesday at the first meeting under new chair Kevin Warsh, with updated quarterly projections likely showing officials no longer see the policy rate falling this year.
- Kevin Warsh, confirmed last month to a four-year term as Fed chief and 14-year term on the Board of Governors, is expected to strip "additional adjustments" language from the policy statement—JP Morgan chief U.S. economist Michael Feroli said Warsh may "take a cleaver" to guidance and wipe it out altogether.
- Investors are pricing in a quarter-point rate increase in December as headline inflation is forecast to exceed 4% in coming months and remain above 3% through 2026, against a backdrop of strong hiring and a 4.3% U.S. unemployment rate.
- Goldman Sachs chief U.S. economist David Mericle said rate cuts are likely on hold until at least mid-2026 if they come at all, calling a "flat path" a plausible alternative if the funds rate is already "in an appropriate place."
- Warsh replaced Jerome Powell last month amid Trump's pressure campaign for rate cuts, including an attempt to fire Governor Lisa Cook—the Supreme Court is due to rule on Cook's case this month—while Powell remains a voting member of the FOMC.
- Oil prices have plunged toward pre-conflict levels (around US$80 a barrel) following the apparent end of the U.S.-backed war with Iran and the reopening of the Strait of Hormuz, though Fed officials must still assess remaining inflationary pass-through from the energy shock.
Why it matters: The Fed's shift toward neutral or hawkish language under Warsh ends months of explicit rate-cut signaling, with a December quarter-point increase now priced in. For borrowers, it means higher-for-longer costs; for Warsh, his debut is an immediate test of managing markets, Trump, and a previously divided committee seeking unanimity.
