In his first appearance as chairman of the Federal Reserve, Kevin Warsh confirmed this afternoon the base rate will hold at its current level of 3.5% to 3.75%.
Taking over the title from Jerome Powell—who stays on at the Fed as a governor—Warsh said: “Economic activity is expanding at a solid pace, despite elevated uncertainty that owes, in part, to the conflict in the Middle East. Productivity growth and capital investment [are] both strong. Job gains have kept pace with the workforce, and the unemployment rate has changed a little.”
On inflation—a political lightning rod at present given pressures around affordability—Warsh was clear: “Persistently high prices are a burden for the American people. But the recent past need not be prologue. I am pleased to report that members of the FOMC are unambiguous and unanimous.
“This committee will deliver price stability.”
The June meeting of the Federal Open Market Committee (FOMC) has been one of the most hotly anticipated gatherings at the central bank for many years. Paramount in the furor is the question of Federal Reserve independence: In the final months of Powell’s tenure, President Donald Trump and the White House took unprecedented action (from legal cases against Powell and fellow Governor Lisa Cook, to a barrage of insults, to threats of firing the chairman) in their campaign for lower rates.
Warsh—who secured the president’s nomination amid the onslaught by politicians against the legally mandated independent central bank—is therefore subject to heavy scrutiny as to whether he will prove to be a sock puppet of the Oval Office.
Powell staying on as a governor has only highlighted the issue further, with the embattled former chairman saying he wouldn’t leave the institution until the Department of Justice investigation into his testimony about renovation projects at the Fed had been settled. Powell, now a symbol of Fed autonomy, staying on has been seen by many analysts as a further shield against political intervention.
Warsh, himself a former governor under Chairman Ben Bernanke between 2006 and 2011, is a staunch advocate of Fed independence (in an “Ode” to the central bank, among other statements, he described it as “precious” and necessary), and has denied bowing to any such pressure.
Warsh lightly alluded to such headwinds, opening his press conference by saying: “It’s an honor, a true honor to be back at the Federal Reserve and to take up this duty at a time of such consequence … This week’s FOMC meeting exemplified the very best of the Fed’s traditions, rigorous debate, open-mindedness, commitment to mission, responsibility, and accountability for performance.”
The announcement of a hold is precisely as markets had expected: Ahead of the meeting, CME’s FedWatch barometer was showing a 99.6% chance the Fed funds rate would hold steady. John Canavan, lead analyst at Oxford Economics, wrote in a note to clients hours before the press conference he expected a hold with dovish bias removed from the policy statement.
He added: “It’ll take time for Warsh to make his mark on the institution, but he could announce next week that he’s dropping some of the post-meeting press conferences as part of a less-is-more communication strategy.”
The “back seat Fed” discussed by the likes of Treasury Secretary Scott Bessent presents another question mark hanging over the early days of Warsh’s tenure. The former Morgan Stanley executive has been clear he thinks some elements of forward guidance—such as the dot plot, a chart that records each policymaker’s individual projection for the path of short-term rates—hold the central bank to a predetermined course, rather than allowing it to be reactive.
The dot plot was also released today in the Summary of Economic Projections (SEP), with 19 policymakers usually responding anonymously. In the June report, only 18 responses were recorded—Warsh confirmed in his press conference that he had abstained.
The FOMC’s statement was notably slimmed—a fact Warsh highlighted—and on his famed distaste for forward guidance, he added: “As a general proposition, forward guidance isn’t the business we should be in.”
Long-term trajectory
In the run-up to the meeting, the data have not supported the highly requested cut the White House has been so hopeful for. Inflation, heated by conflict in the Middle East, with oil prices spiking as a result, is well ahead of the FOMC’s 2% target. In the latest CPI report from the Bureau of Labor Statistics (BLS), the all items index increased 4.2% before seasonal adjustment.
Turning to the other driving force of the Fed’s mandate—maximum employment—the BLS has average news: The unemployment rate is holding steady at 4.3%—a figure healthy enough not to prompt a cut to drum up economic activity.
But while the short term offers little room to cut, Wall Street knows Warsh has dovish longer-term views. For a start, the president made it clear the person to land the nomination would need to be more open to a lower base rate than the previous incumbent.
Warsh is also bullish on the economy, previously describing AI as the “most productivity-enhancing wave of our lifetimes.” Moreover, some tightening at the long end of the yield curve could open the door for cuts in due course, as could a plan to reduce the Fed’s balance sheet, which may similarly restrict financial conditions.
Glimmers of this optimism could be spied in the FOMC’s statement, issued ahead of Warsh’s press conference. The unanimously agreed-upon release read: “Economic activity is expanding at a solid pace despite elevated uncertainty that owes, in part, to the conflict in the Middle East. Productivity growth and capital investment are strong. Job gains have kept pace with the workforce, and the unemployment rate has changed little.”
