Fed Holds Interest Rates Steady at Kevin Warsh’s First Meeting as Chairman

The Federal Reserve kept its benchmark rate unchanged as Chairman Kevin Warsh announced a review of the central bank’s communications, inflation framework, data use and policy approach.

By yourNEWS Media Newsroom

The Federal Reserve left interest rates unchanged Wednesday at Kevin Warsh’s first policy meeting as chairman of the U.S. central bank, while officials signaled that inflation remains above target and could stay elevated for years.

The Federal Open Market Committee voted 12–0 to keep the benchmark federal funds rate in a target range of 3.5% to 3.75%.

“Economic activity is expanding at a solid pace despite elevated uncertainty that owes, in part, to the conflict in the Middle East,” the Fed said in its post-meeting statement. “Productivity growth and capital investment are strong. Job gains have kept pace with the workforce, and the unemployment rate has changed little.”

The Fed said inflation remains above its 2% goal, partly because of supply-side shocks that have driven up prices in areas such as energy.

“The Committee remains committed to restoring price stability,” the statement said.

The statement was far shorter than recent Fed communications, totaling 130 words. The April statement was 341 words.

President Donald Trump told reporters the Fed’s decision was “alright.”

Asked about the possibility of a future rate increase, Trump said it was “hard to believe.”

“It just keeps the country down and it’s so, it’s so unusual. But we have a very good guy over there right now, so I’m guided by what he wants,” Trump said.

Byron Anderson, head of fixed income at Laffer Tengler Investments, said in an emailed note to The Epoch Times that the Fed had little reason to move rates immediately.

“There was nothing for the Fed to do today except wait for the energy supply shock to subside; rate hikes don’t solve oil prices today,” Anderson said.

Warsh used his first press conference as Fed chairman to announce a new internal review aimed at changing how the central bank operates and communicates.

He said he is creating five task forces focused on communications, the balance sheet, the Fed’s use and reliance on data sources, productivity and employment, and inflation frameworks.

“Each task force will serve an objective shared by everyone in the system, shared by everyone around that table that I sat with over the last couple of days, a Federal Reserve that is clear-eyed about its mission, fit for purpose, and focused on the future,” Warsh said.

The review is expected to be completed by the end of the year. It will examine the Fed’s communications broadly, including press conferences, meeting minutes and transcripts.

Warsh did not say whether the Fed would change its long-standing 2% inflation target.

He acknowledged that changing Fed practices is difficult and “filled with risk.”

“But our number one goal is to get monetary policy right,” Warsh told reporters. “The way to get monetary policy right is to deliver on the remit that Congress gave us to deliver on price stability, and there was no disagreement on any of those points.”

The shorter statement and Warsh’s comments gave investors an early indication of how the Fed may change under his leadership.

“We are getting a taste of communication changes with a notably shortened statement and, interestingly, no reference to the employment mandate,” Christian Hoffmann, head of fixed income at Thornburg Investment Management, said in a note emailed to The Epoch Times.

“We continue to be interested in the leadership transition and ’regime change,’” Hoffmann said.

Policymakers are taking a wait-and-see approach as they monitor whether the oil price shock from the Iran conflict spreads through the broader economy.

The Fed’s updated Summary of Economic Projections showed officials expect inflation to remain above target until 2028.

The median 12-month Personal Consumption Expenditure inflation rate is now projected to be 3.6% this year, up from 2.7% in the previous forecast.

Core PCE inflation, which excludes volatile food and energy prices, is projected at 3.3% this year, also up from 2.7% in the March forecast.

Officials now expect slower economic growth this year. Real GDP growth is projected at 2.2%, down from the previous estimate of 2.4%. Growth is expected to remain slightly above 2% in 2027 and 2028.

The unemployment outlook improved slightly. Policymakers now expect unemployment to be 4.3% this year, down from the previous forecast of 4.4%. The projections for 2027 and 2028 remained unchanged at 4.3% and 4.2%, respectively.

Warsh said during his Senate confirmation hearing that the U.S. labor market appeared to be at full employment based on the Fed’s dashboard of indicators.

A note attached to the quarterly outlook said 18 of 19 meeting participants submitted rate and economic projections. Warsh told reporters he was the participant who abstained.

“It’s been the practice of this committee for participants to submit these projections, and I have encouraged my colleagues to continue to do so,” Warsh said. “I, however, have refrained from offering any projections of my own, consistent with my long-held views on the [Summary of Economic Projections], at least as currently structured.”

At his April confirmation hearing, Warsh criticized the Fed’s projection process.

“The Fed tells the whole world what their dots are going to be, what their forecasts are going to be,” Warsh told lawmakers.

“Well, the Fed’s human. Then they hold onto those forecasts longer than they should,” he said. “I think if the Fed were to wait until it gets into a meeting before making a decision, that incremental deliberation can keep the central bank from compounding its errors. I think these are big changes that are needed.”

Markets reacted quickly after the Fed meeting.

Investors fully priced in the possibility of an interest rate increase later this year. CME FedWatch data showed a 60% chance of a rate hike at the October meeting.

The two-year Treasury yield, which closely follows Fed policy expectations, rose about 14 basis points to nearly 4.2%.

“Markets and consumers should be happy that more of the same will not be the default,” Anderson said. “Inflation is a problem and has been for five years, but a unanimous agreement for no movement was appropriate.”

“Warsh is inheriting a precarious situation and with it everyone should be happy with an efficient and thoughtful new Fed Chairman,” Anderson said.

U.S. stocks declined after the meeting. The Dow Jones Industrial Average, S&P 500 and Nasdaq Composite each fell as much as 1% near the end of the June 17 trading session.