WASHINGTON — The Federal Reserve is widely anticipated to leave interest rates unchanged on Wednesday, wrapping up the first policy meeting led by new Fed Chair Kevin Warsh. A fresh policy statement and updated economic forecasts are expected to signal growing worry about inflation driven by the war with Iran, even as global oil prices have pulled back on optimism surrounding a potential peace agreement.
Recent economic data has shown solid job growth in the United States, an unemployment rate sitting at a relatively modest 4.3%, and inflation running well above the Fed’s 2% target. Given that backdrop, many analysts expect the Fed to drop wording from its policy statement about “additional adjustments” to its benchmark rate — language that had previously signaled the likelihood of future rate reductions.
Warsh has publicly expressed skepticism about the practice of giving forward guidance on monetary policy, and several Fed officials have recently suggested it’s time to drop the so-called “easing bias” in favor of more neutral language that leaves open the possibility of rate increases down the road.
Markets currently expect the Fed’s policy-setting Federal Open Market Committee to raise rates by a quarter percentage point in December.
Michael Feroli, chief U.S. economist at JP Morgan, wrote ahead of the meeting: “We expect a more neutral bias.” He added that “it’s possible the committee, under Warsh, takes a cleaver” to the statement and eliminates rate guidance entirely, either at this meeting or a future one.
Feroli also noted that changes to the statement could bring aboard the three policymakers who dissented in favor of tougher language at the April 28-29 meeting. That would give Warsh — who has described dissent as a sign of institutional health and wants Fed meetings to resemble a “family fight” — a unanimous vote in his debut as chair.
The Fed’s rate decision, updated policy statement, and revised economic projections will be made public at 2 p.m. Eastern time Wednesday. Warsh, who took over from former Fed chief Jerome Powell last month, will hold a press conference 30 minutes later, keeping to the schedule his predecessor established.
Powell will remain a voting member of the policy committee in his continuing role as a Fed governor.
During his Senate confirmation hearing, Warsh said he believes Fed officials speak too frequently and contribute too little to meaningful policy debate — a possible sign he may scale back his own public appearances and reduce media access going forward.
Warsh, 56, was confirmed last month to a four-year term as Fed chair and a 14-year term on the Board of Governors. He stepped into the role amid significant tension between Powell and the White House, stemming from Powell’s refusal to deliver the steep rate cuts demanded by President Donald Trump.
That friction included Trump’s effort to gain greater influence over the central bank by attempting to remove Fed Governor Lisa Cook — an unprecedented presidential move — as well as the launch of a criminal investigation into Powell that has since been dropped.
The U.S. Supreme Court is expected to rule this month on whether Cook can remain in her position. Although the decision is anticipated to favor her, it could carry significant consequences for how the Fed is governed in the future.
Powell, who attended Cook’s Supreme Court hearing, has been widely praised for standing firm against White House pressure. Warsh has not publicly commented on the Cook situation or the broader pressure campaign directed at his predecessor.
ECONOMIC UNCERTAINTY COMPLICATES THE OUTLOOK
Although Warsh begins his tenure on better terms with the White House than Powell did, the window for potential rate cuts appears to be closing.
The quarterly projections being released this week are expected to show that the median Fed official no longer foresees the policy rate declining this year. Instead, rates are projected to stay in the current 3.50%-3.75% range, reflecting expectations of higher inflation and potentially a lower unemployment rate by year’s end. Some officials may indicate they expect a rate increase.
Warsh’s first press conference is likely to be dominated by sweeping questions about his agenda. In the period leading up to his nomination by Trump, Warsh repeatedly criticized the Powell-led Fed’s approach to policymaking and communications, called for reducing the central bank’s financial asset holdings, and promised wide-ranging reforms.
More immediate issues are also in play, particularly the apparent winding down of the U.S.-backed conflict with Iran and the reopening of the Strait of Hormuz. Although those developments have pushed global oil prices sharply lower — toward levels seen before the conflict began in late February — Fed officials must now evaluate how much inflationary pressure remains from the recent energy price spike and the anticipated slow resumption of global commodity shipments through the strategic waterway.
With global oil prices near $80 per barrel and some confidence that a Middle East ceasefire could hold, David Mericle, chief U.S. economist at Goldman Sachs, wrote in an analysis of this week’s meeting that “so far the impact on inflation looks more like the usual pass-through from large oil shocks” and likely won’t force Warsh to raise rates.
Still, rate cuts appear unlikely until at least mid-next year — if they happen at all — given that headline inflation is projected to climb above 4% in the coming months and stay above 3% through 2026.
“A long pause would increase the probability that the FOMC could instead decide that the (federal) funds rate is already in an appropriate place if the economy continues to perform well,” Mericle wrote. “We see a flat path as a plausible alternative.”
