The Federal Reserve maintained current interest rates on Wednesday during the inaugural rate-setting meeting led by Chairman Kevin Warsh.
“business inflation exceeded 6% in May, while overall consumer inflation climbed above 4%, both consequences of the energy shock from the Iran war that continues to impact the U.S. economy.
Asked by NBC News what he would tell the average American about inflation and slowing wage growth, Warsh replied, “If I saw somebody in the grocery store, what I would say to them is that we cannot have a very significant effect on particular prices.”
He would also say it’s the Fed’s job “to make sure that those [price] changes in oil or beef or eggs or milk don’t broaden in the economy.”
“That’s our commitment,” he added, “and we’re going to deliver on it.”
Warsh was also asked if he had been in contact with President Donald Trump since assuming his new position. “I don’t have anything for you,” he replied. For his part, Trump described the Fed’s Wednesday decision as “all right, whatever.”
When asked about the possibility of a rate hike, Trump told reporters in Paris that it’s “hard to believe.”
“It’s so unusual, but we have a very good guy over there now, so I’m guided by what he wants,” he said.
The rate vote was unanimous, marking a shift from the previous meeting, which saw four dissents for various reasons.
Central bank policymakers also published updated economic forecasts for the coming years. The last time they did so was during the early stages of the Iran war, when the economic outlook was significantly more obscure.
Current projections indicate the committee anticipates 0.25% in rate hikes throughout 2026, followed by an equivalent amount of cuts in 2027. Policymakers also marginally lowered their economic growth outlook from 2.4% to 2.2%.
The data also shows that Fed officials expect core inflation, which excludes energy and food costs, to remain high at 2.5% through next year. In May, that figure rose to 2.9%.
Only 18 of 19 Fed policymakers provided projections. “I did not submit a dot,” Warsh said. “For me it’s not helpful.”
In a significant departure from his predecessor, Jerome Powell, the Warsh-led Fed drastically condensed its interest rate announcement, omitting any guidance on future actions and removing details regarding the specific metrics the Fed is monitoring.
The Fed stated that “the committee will deliver price stability,” one of its two congressionally mandated objectives. The statement did not reference full employment, the Fed’s second mandate.
The announcement totaled just 130 words, a substantial reduction from the 341 words contained in the final Powell-led meeting on April 29.
Prior to becoming chairman, Warsh had suggested that the Fed required a “regime change.”
At Wednesday’s news conference, he announced the formation of five task forces set to begin work in the coming “couple of weeks” to review Fed communications and key areas of monetary policy, such as inflation.
Asked if the Fed’s long-standing 2% inflation target was being considered by the task force, Warsh said he did not believe in revisiting that goal until it had been achieved.
Following the news conference, stocks declined as traders estimated a greater than 90% probability of a rate hike by October.
The S&P 500 finished down 1.2%, the Nasdaq Composite dropped 1.3%, and the Dow fell 506 points.
The 10-year Treasury yield, which significantly impacts consumer borrowing costs, climbed to nearly 4.5% by 4 p.m. ET.
“The risk of a rate hike has increased significantly, as has the potential timeline for a hike,” Evercore’s Krishna Guha said in a note after Warsh spoke. “July still looks too soon but not now inconceivable and September must be in play if the next few inflation prints are unfavorable.”
“Markets will have to get used to a difficult transition to the new Fed era,” he added.
