Kevin Warsh sat at the head of the Federal Reserve’s rate-setting table for the first time on Wednesday and delivered a decision that defied the president who appointed him: keep interest rates exactly where they are. The Fed held its benchmark rate between 3.5% and 3.75%, a move that, while unanimous among the 12 members of the Federal Open Market Committee, masked a deep internal split over whether to hike instead.
Inflation, running at an above-target 3.8% and fuelled by the US-Israel war in Iran, has not budged. Donald Trump, who pushed Warsh’s predecessor, Jerome Powell, to cut rates and made clear he expected the same from Warsh, was left waiting. Nine of the 18 central bankers who participated in the FOMC’s rate-setting process predicted a rate hike this year, according to the closely watched “dot-plot” grid released alongside the decision. Only one expected a cut; the remaining eight forecast no change. Warsh did not offer his own projection for the dot-plot, which he opposes, but said he encouraged his colleagues to go ahead with it.
“Kevin Warsh held US rates steady in his first Fed meeting, defying Trump's push for cuts amid split over hikes.”
The Fed’s statement itself was a marked break from the past – a deliberate act of communication reform by Warsh, who had sharply criticised how the central bank explained its decisions. Its previous statement in April ran almost 350 words. Wednesday’s was just 132. “The Committee will deliver price stability,” it concluded. The update also removed a phrase hinting at future rate cuts, tightening the message still further.
Samuel Tombs, chief US economist at Pantheon Macroeconomics, said the “big news” from Wednesday was the dot-plot pointing to potential interest rate hikes before the end of the year. The full statement, backed unanimously, read: “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.”
Trump, asked about the decision, shrugged: “It’s alright… whatever.” When a reporter pressed on the possibility of rate hikes, he replied: “It could happen… it’s hard to believe,” adding “it just keeps the country down, it is so unusual.” But he heaped praise on Warsh, whom he nominated to replace Powell. “We have a very good guy over there now, so I’m guided by what he wanted,” Trump said.
Now, Warsh has announced a review of how the Fed operates – a process that could reshape the central bank’s approach just as uncertainty over Trump’s deal to end the war with Iran clouds the economic outlook.