In his first appearance as Federal Reserve Chairman this afternoon, Kevin Warsh confirmed that the federal funds rate will remain at its current level of 3.5% to 3.75%.
Succeeding Jerome Powell, who remains Fed governor, Warsh said: “Economic activity is growing at a solid pace, despite increased uncertainty due in part to the conflict in the Middle East. Productivity growth and capital investment.” [are] both strong. Employment growth has kept pace with the labor force, and the unemployment rate has changed somewhat.”
On inflation – currently a political lightning rod amid affordability pressures – Warsh was clear: “Persistently high prices are a burden on the American people. But recent history need not be prologue. I am pleased to report that the members of the FOMC are clear and unanimous.”
“This committee will ensure price stability.”
The June meeting of the Federal Open Market Committee (FOMC) is one of the most highly anticipated central bank meetings in many years. At the heart of the excitement is the question of the independence of the Federal Reserve: In the final months of Powell’s term, President Donald Trump and the White House took unprecedented actions (from Trial of Powell And Fellow governor Lisa Cookto a flood of insults, too Threats to fire the chairman) in their campaign for lower tariffs.
Warsh – who secured the presidential nomination amid the Politicians’ attack on the legally required independent central bank– is therefore subject to intense scrutiny as to whether he will prove to be a sock puppet of the Oval Office.
Powell’s stay as governor has only further highlighted the problem with the embattled former chairman He said he wouldn’t leave the institution until the Justice Department’s investigation into his testimony about renovation projects at the Fed was completed. Powell, now a symbol of Fed autonomy, Many analysts have noted that it will stay that way as further protection against political intervention.
Warsh, was himself a former governor under Chairman Ben Bernanke between 2006 and 2011is a staunch supporter of Fed independence (in an “ode” to the central bank, among other things, he described it as “precious” and necessary) and denied bowing to such pressure.
Warsh alluded lightly to these headwinds, opening his press conference by saying, “It is an honor, a true honor, to be back at the Federal Reserve and to take on this role at a time of such momentous importance… This week’s FOMC meeting was an example of the Fed’s best traditions: rigorous debate, open-mindedness, commitment to its mission, responsibility and accountability for its performance.”
The announcement of a suspension comes exactly as markets expected: in advance of the meeting CME’s FedWatch Barometer showed a 99.6 percent chance that the Fed’s key interest rate would remain stable. John Canavan, senior analyst at Oxford Economics, wrote in a note to clients a few hours before the news conference that he expected a restraint, with the dovish bias removed from the policy statement.
He added: “It will take time for Warsh to put his stamp on the institution, but he may announce next week that he will forego some of the post-meeting press conferences as part of a less-is-more communications strategy.”
The “Fed in the backseat,” discussed by people like Treasury Secretary Scott Bessent represents another question mark hanging over the early days of Warsh’s tenure. The former Morgan Stanley The chief executive has made it clear that he believes some elements of forward guidance – such as the dot plot, a chart that plots each policymaker’s individual forecast for the direction of short-term interest rates – keep the central bank on a predetermined path rather than allowing it to react.
The dot plot was also published today in the Summary of Economic Projections (SEP), with 19 policymakers responding, generally anonymously. The June report only recorded 18 responses – Warsh confirmed in his press conference that he had abstained.
The FOMC’s statement was significantly shortened – a fact Warsh highlighted – and to his famous aversion to forward leadershipHe added: “In general, forward guidance is not the business we should be in.”
Long-term trajectory
Ahead of the meeting, the data did not support the urgently called for cuts that the White House had pinned so much hope on. Inflation fueled by the conflict in the Middle East, which is causing oil prices to rise, is well above the FOMC’s 2 percent target. In the latest CPI report from the Bureau of Labor Statistics (BLS), the overall index rose 4.2% before seasonal adjustment.
As for the other driving force of the Fed mandate – peak employment –The BLS has average news: The unemployment rate is stable at 4.3% – a level healthy enough not to trigger a reduction to stimulate economic activity.
But even if there is little room for cuts in the short term, Wall Street knows that Warsh has dovish views on the longer term. First, the president made it clear that the person receiving the nomination would have to be more open to a lower base rate than the current incumbent.
Warsh is also optimistic about the economy, previously describing AI as “the most productivity-enhancing wave of our lifetime.” Additionally, some tightening at the long end of the yield curve could open the door to rate cuts in due course There could be a plan to reduce the Fed’s balance sheetwhich can also restrict financial conditions.
A glimmer of this optimism could be spotted in the FOMC statement released before Warsh’s press conference. The unanimously approved press release states: “Despite increased uncertainty, partly due to the conflict in the Middle East, economic activity is growing at a solid pace. Productivity growth and capital investment are strong. Employment growth has kept pace with the labor force and the unemployment rate has remained little changed.”