Kevin Warsh took a tough, anti-inflation stance in his first meeting as Fed chairman Wednesday — as the central bank flipped from an “easing bias” to expectations of a rate hike later this year.
In the first vote without any dissent since last June, the Fed kept rates in the 3.5% to 3.75% range, saying economic activity is “expanding at a solid pace,” unemployment “has changed little” and inflation “remains elevated,” partly due to energy supply shocks amid the war in Iran.
Warsh said that all 12 members of the Fed committee have agreed to tackle inflation, noting that “persistently high prices are a burden for the American people” – and vowing: “This committee will deliver price stability.”
President Trump — who had relentlessly bashed Warsh’s predecessor, Jerome Powell, branding him a “numbskull,” a “jerk” and a “fool” for not slashing interest rates — gave a surprisingly muted reaction Wednesday.
“It’s alright, whatever,” the president told reporters.
When asked about the possibility of a rate hike, Trump said: “It could happen. It’s hard to believe. It just keeps our country down. It’s so unusual.”
But Trump also expressed confidence in Warsh, saying: “We have a very good guy over there now, so I’m guided by what he wants to do.”
Warsh was also notably absent from the Fed’s “dot plot” projections altogether, which estimate interest-rate moves over the coming years – saying he finds it is “not helpful.”
“I can’t give you any forward guidance about what we’re gonna do next. The good news is that we’re gonna be meeting in six weeks,” Warsh said.
He argued that financial markets perform best when they react to actual data, not the Fed’s interpretation of the data – saying forward guidance can act like “blinders.”
The other Fed members hiked their inflation projections for the year, saying they will believe it will hit 3.6% by the end of 2026 – up from a forecast of 2.7% in March.
The Fed also drastically reduced its expectations for cuts in 2026 – with a median outlook of one quarter-point hike. After its meeting in March, the Fed had expected a median of one quarter-point cut this year.
Nine of 19 officials saw at least one rate hike by the end of the year – up from just one member in March.
Warsh also announced new task forces in five areas: communications, the Fed’s balance sheet, existing data sources, productivity and jobs and the Fed’s inflation frameworks.
He said he is still “recruiting and finalizing” the task forces, which will enlist the “very best minds” both in and outside of economics.
In a clear shift from Powell, Warsh declined to provide any forward guidance – repeatedly responding to questions by saying, “We have a task force for that.”
The Dow Jones Industrial Average slumped more than 500 points, or 1%, after the disappointing economic outlook, while the S&P 500 and Nasdaq slipped 1.2% and 1.4%, respectively.
“We are going back to the days of Alan Greenspan when FOMC statements were deliberately minimalist, opaque and focused on actions, not explanations,” Jeffrey Roach, chief economist for LPL Financial, said in a note Wednesday.
“The biggest factor driving uncertainty is the Middle East war so once that is past, we can focus on the persistency of capital investment and ensuing productivity gains which currently implies the economy is growing close to trend.”
A shorter-than-usual Fed statement is already showing signs of Warsh’s impact, as he has long criticized central bankers for being too outspoken on future policy direction.
At the time President Trump picked Warsh in January, after months of railing against former Powell to slash interest rates, the labor market was showing signs of strain and inflation seemed like it could inch back down after the effects of tariffs wore off.
But the war in Iran has since created the worst-ever energy supply disruption, sending gasoline prices soaring – and reheating inflation above 4% for the first time in three years, according to the May Consumer Price Index.
Though Trump on Sunday announced a deal with Iran to reopen the Strait of Hormuz, analysts have warned it could take months for supplies and prices to stabilize.
