The Federal Reserve voted Wednesday to hold its interest rate target steady following the first meeting for new Fed Chairman Kevin Warsh, meaning that President Donald Trump’s long-expressed desire for the central bank to lower interest rates will be unfulfilled for now.
After a two-day meeting in Washington, the Fed’s monetary policy committee announced it would hold its rate target at a range of 3.50% to 3.75%. Investors expected that outcome, as the country grapples with too-high inflation and higher energy costs stemming from the Iran war.
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The vote was unanimous.
WARSH FACES SIMILAR TRAP TO ONE THAT LED TO HUGE INFLATION IN 2022
In a statement, the Fed said prices were propped up “in part” because of the conflict with Iran, but added that it “will deliver price stability.”
At a press conference following the announcement, Warsh said the statement, which was much shorter than has been the norm, indicated that the Fed is “unambiguously and unanimously” committed to bringing inflation down to its 2% target. Otherwise, though, he mostly avoided giving definite answers to questions about his plans for monetary policy, and instead said newly announced task forces would address many of the major questions facing the central bank.
It is the first meeting Warsh has overseen, and it is of particular interest given that Trump pushed his predecessor, Fed governor Jerome Powell, hard to lower interest rates.
A major factor in the Fed’s decision to hold rates steady is that the labor market remains healthy and not in need of easier monetary policy. The unemployment rate is low by historical standards, and job growth has been strong heading into the summer. Job openings have risen.
Meanwhile, inflation has trended up to the highest rate in years, adding pressure on the Fed to raise rates rather than lower them.
Consumer price index inflation rose four-tenths of a percentage point to 4.2% for the year ending in May — the highest rate of inflation since April 2023. In just May, prices rose 0.5%.
Much of the run-up in inflation reflects the spike in energy costs caused by disruptions to the oil and gas markets from the war in Iran. But even measures of inflation that strip out energy costs have been rising, suggesting the problem goes deeper.
Interest rate projections showed that the Fed board is split on whether rates will remain the same by the end of the year or be increased. One participant indicated a cut. But nine projected rate hikes.
The Fed also released updated multiyear projections for inflation, gross domestic product, and unemployment, as it does every other meeting.
Fed officials said they see inflation, as gauged by the personal consumption expenditures index, running at 3.6% by the end of the year. That is an increase from the board’s last projections in March, when they predicted inflation would fall to 2.7% by the end of 2026.
The officials also projected that the unemployment rate would remain at 4.3% by the end of this year.
In terms of GDP, they predict 2.2% GDP growth this year, a decrease from March, when board participants were projecting 2.4% growth in 2026.
Warsh’s scheduled press conference was highly anticipated to see how he would handle the challenge of curbing inflation versus fulfilling Trump’s wish for lower interest rates. It is worth noting, though, that Trump in recent weeks eased off his demand for easier monetary policy, telling the Washington Examiner that he would allow Warsh to do what he wanted to do.
Trump brushed off the Fed’s decision to hold rates steady. “It’s all right,” he told reporters while traveling in France. “Whatever.”
Asked about the possibility of the central bank raising rates this year, Trump said, “It could happen. It’s hard to believe. It just keeps a country down. It’s so unusual. But we have a very good guy over there now, so I’m guided by what he wants.”
Bond market prices indicated Wednesday afternoon that investors saw a greater possibility of multiple rate hikes this year.
Warsh also faced a range of questions about how he plans to conduct himself as chairman. One point of emphasis for Warsh during his confirmation hearing is that the Fed needs to return to its core mandate of price stability and maximum employment.
The Fed nominee has argued that, in recent years, including under Powell, the central bank has stretched the bounds of its remit by pushing politics and entering into policy conversations that don’t fit into its mandate.
One reform Warsh mentioned during his confirmation hearing earlier this year is how he messages to the public.
FED AND WARSH UNDER INCREASING PRESSURE TO KEEP RATES HIGHER, THANKS TO LABOR MARKET STRENGTH
During his confirmation hearing, Warsh said he thinks there is too much “forward guidance” from the Fed board — basically, it puts out too many public projections for interest rate policy decisions and inflation.
In his press conference Wednesday, Warsh said a task force would address what kinds of communication the Fed should engage in. He said he didn’t want to prejudge the outcome, but that he was impressed by his conversations with new colleagues.
