Fed tackles inflation and keeps interest rates on hold
Federal Reserve Chairman Kevin Warsh said inflation remains high because the Fed is keeping interest rates on hold.
At Kevin Warsh’s first meeting as chairman on June 17, the Fed left its benchmark interest rate unchanged, which did not satisfy Americans who had hoped for a reduction in high borrowing costs, but Mr. Warsh promised that the central bank would achieve “price stability.”
That could be good news for consumers facing high prices while inflation remains stubborn and paychecks are difficult to maintain. It will also be a challenge. Warsh said that while the Fed cannot have a “very significant impact on specific prices” for some of the things Americans buy most, such as gasoline and groceries, he still believes the Fed has a relevant and important role to play.
“This is to ensure that changes in oil, beef, eggs and milk don’t spread through the economy and have second- and third-order effects,” Warsh said. “That’s our job. That’s our commitment. That’s the capability we’re trying to deliver.”
For now, the federal funds rate remains in the 3.5% to 3.75% range, meaning there won’t be much change for consumers in the short term. But in the longer term, some of the changes announced by Warsh mean that the central bank’s views and operations could change by the end of the year.
Here are six takeaways from Warsh’s first meeting as chair.
What this conference meant to Americans’ wallets
The federal funds rate serves as a benchmark for interest rates across the country, so if the Fed keeps rates unchanged, it means Americans will continue to pay similar interest rates on things like credit cards and personal loans.
Higher interest rates continue to benefit savers through improved returns on certificates of deposit and high-yield savings accounts.
Contrary to popular belief, central banks have little influence over mortgage rates. A 30-year fixed rate mortgage would instead follow the trajectory of a 10-year Treasury note.
Increased likelihood of future interest rate hikes
The Fed has few tools to make good on its new promise of price stability. Apart from shrinking balance sheets, which reduces liquidity in the economy, reduces asset values, and ultimately lowers inflation rates, they generally aim to do so by setting a higher target range for their benchmark interest rates.
There is a growing consensus on the Federal Open Market Committee to do the latter. Mr. Warsh broke precedent by not providing a forecast for the federal funds rate, but nine FOMC members believe there is room for a rate hike by the end of 2026. By comparison, eight members believe the Fed’s interest rate range remains stable, and one member believes there is room for rate cuts.
The Fed cut interest rates three times late last year in response to concerns about a slowing labor market. The current forecast for interest rate hikes appears to be in response to soaring inflation since the start of the Iran war and strong employment growth over the past three months.
Oil and gas prices have fallen on news of peace talks between the two countries, but experts say inflation will likely remain high in the coming months.
Special committee could shake up the Fed
During his Senate confirmation hearing in April, Warsh advocated “systemic change” at the Fed. Early signs of what he meant came shortly after his first press conference, in which he announced a new task force focused on five areas of monetary policy. These are Fed communications, the balance sheet, the use and reliance on existing data sources, the inflation framework, and productivity and employment.
“If there is a genuine effort to improve the Fed’s data, communications and response capabilities, that is constructive,” Christian Hoffman, head of fixed income at Thornburg Investment Management, said in a note to USA TODAY. “While monetary policy is often described as a science, it remains very much an art, and the current global framework is far from perfect.”
Warsh said he has appointed Fed insiders and outsiders to a task force that will begin work in the coming weeks to give policymakers recommendations, rather than mandates, about changes to the Fed this fall.
Gbenga Ajiroa, chief economist at the Center on Budget and Policy Priorities, said it makes sense for Warsh to focus on the five areas he identified, but who he appoints will be important.
“Often people set up task forces to do what they already want to do,” Asilole says. “But the way I look at it, sometimes just because things are happening the way they’re happening right now doesn’t necessarily mean it’s the right way. I’m thinking about the data side, the task force. There might be better data, so it might be good to actually be able to review it.”
Reduced communication could mean increased volatility
In addition to not submitting his forecasts in the Fed’s quarterly economic outlook summary, Mr. Warsh appears to have followed through on his promise as a candidate to reduce forward guidance.
The FOMC’s statement explaining its interest rate decisions is nearly half as long as it was after its last meeting in April, and Warsh declined to answer reporters’ questions about the future. The lack of forward guidance could further increase market volatility.
“It’s like being on a boat, you know your destination, but now it’s getting a little foggy,” Asilole said. “If you have more guides, there will be a lot less fog and you can see where the waves are going.”
For everyday Americans, increased market volatility could mean even more fluctuations in the stock market and their 401(k), he added.
Trump has been patient with Warsh so far.
After years of railing against former Fed Chairman Jerome Powell, whom he appointed in 2017, and pleading for lower borrowing costs, President Donald Trump dismissed the Fed’s decision to keep interest rates unchanged at Warsh’s first meeting.
“I’m fine. Anything goes,” Trump told reporters in Paris on June 17, adding that he knew interest rate hikes could happen later this year, “but it’s unbelievable. It’s just going to stifle the country.”
So far, the president appears to be patient with Warsh, whom he appointed in March 2026. He called Warsh a “good person” and said he was “guided” by what Warsh wanted to do.
Concerns about Fed independence eased
There was much speculation before the first meeting about how Warsh’s return to the Fed as chairman would affect the Fed’s independence.
The move follows the president’s efforts last year to fire Fed Director Lisa Cook over allegations of mortgage fraud, and the Justice Department’s decision to open an investigation into Mr. Powell over the multibillion-dollar renovation of the Fed’s headquarters. The Justice Department closed its investigation in April, and Cook denied wrongdoing and took the case all the way to the Supreme Court.
The justices heard the case in January but have not yet issued a ruling.
But Mr. Warsh did not join Mr. Trump’s call for rate cuts during their first meeting. His focus on curbing inflation implied the opposite.
“This is basic game theory: the new Fed chair must establish credibility early,” Hoffman said in the memo. “If Chairman Warsh doesn’t choose to fight inflation from the beginning, it will be very difficult to restore trust later.”
Mike Scordeles, Trust’s head of U.S. economics, said he thinks Warsh honestly “wants to do the right thing.”
“He’s not going to turn the tide and blow up the Fed,” he added.
Contact Rachel Barber at rbarber@usatoday.com, follow her at X @rachelbarber_ and subscribe to her newsletter Making More of Your Money here.
