The Federal Reserve held interest rates steady at Kevin Warsh’s first meeting as chairman Wednesday – and drastically cut back on its expectations for rate cuts this year, signaling a more hawkish stance.
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 Iran war.
Despite President Trump’s monthslong campaign for rate cuts, 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 expected a median of one quarter-point cut this year.
The Dow Jones Industrial Average traded roughly flat in the wake of the disappointing economic outlook, while the S&P 500 and Nasdaq fell 0.4% and 0.3%, respectively.
The Fed’s statement was much shorter than usual, an early sign of Warsh’s impact. He has long criticized central bankers for being too outspoken on future policy direction.
One person – likely Warsh – was also notably absent from the Fed’s “dot plot” projections altogether, which estimate interest-rate moves over the coming years.
At the time Trump picked Warsh in January, after months of urging former Chair Jerome 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 Iran war 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.
