Federal Reserve holds rates steady at Warsh's first meeting

The Federal Reserve held interest rates steady Wednesday at Chair Kevin Warsh's first rate-setting meeting since taking the reins of the central bank.

In a unanimous decision, the Federal Open Market Committee (FOMC) maintained its baseline interest rate at a range of 3.5 percent to 3.75 percent. It marks a shift from the panel's divided vote in May, in which four members dissented.

Warsh, whom the Senate confirmed last month, faces a complicated endeavor as he seeks to balance President Trump's push for rate cuts with rising inflation.

Inflation hit a three-year high in May, as the war with Iran pushed up the cost of energy and other goods. Prices rose 4.2 percent year over year, according to the consumer price index, a popular measure of inflation.

It marked a steep uptick from February, when the annual inflation rate sat at 2.4 percent. While the U.S. and Iran are expected to formally sign a memorandum of understanding to end the war on Friday, it's unclear how quickly prices will come back down.

The agreement is expected to reopen the Strait of Hormuz, a key shipping corridor where traffic has been brought largely to a halt since the war began in February.

The price of oil, which climbed to more than $100 per barrel amid the conflict, fell to about $77 per barrel Wednesday. The average U.S. gas price also dipped slightly to $4.03 per gallon.

While Americans may feel some relief at the pump, experts have warned that gas prices could remain elevated for months.

Alongside the May jobs report, which came in hotter than expected, the prospect of interest rate cuts this year is looking increasingly dim. Instead, rate hikes are emerging as a real possibility.

In economic projections released Wednesday, eight members of the FOMC indicated they see the central bank holding rates steady this year. Nine others anticipated rate hikes of varying degrees, while just one suggested there should be a single quarter-point cut this year.

Warsh confirmed Wednesday he did not participate in the projections, as was widely expected. He said his decision is "consistent with my long-held views" on the quarterly releases.

The situation puts Warsh in a tough spot. Trump has repeatedly called for lower interest rates, suggesting in April that he would be disappointed if the new Fed chair did not lower rates right away.

"It's alright. Whatever," the president said when he asked about the Fed's decision Wednesday.

"It could happen," he added on the prospect of rate hikes. "It's just hard to believe. It just keeps the country down. It's so unusual. But we have a very good guy over there now, so I'm guided by what he wants."

Warsh's predecessor, Jerome Powell, frequently drew Trump's ire for being "too slow" to cut rates, with the president threatening to fire him on multiple occasions.

The Department of Justice (DOJ) launched a criminal probe into Powell late last year over his handling of Fed renovations but closed the investigation in April, as it became a major roadblock to confirming Warsh.

While Powell is no longer chair, he has opted to remain at the Fed and continue serving as a member of the board of governors. His term lasts until January 2028.

He said last month that he intends to stay until the DOJ probe is "well and truly over with transparency and finality." Jeanine Pirro, U.S. attorney for the District of Columbia, has warned she could resume the investigation depending on the findings of the Fed's inspector general, which took over the probe.

This has created an unusual dynamic at the Fed, with both the former and current chairs on the board. It also prevents Trump from nominating another Fed governor who would likely be more favorable to rate cuts.

The Fed's first rate policy statement under Warsh is notably shorter than those under Powell, removing any forward guidance.

"What a dramatic change to the Fed statement. It's the shortest since the Alan Greenspan era," Heather Long, Navy Federal Credit Union's chief economist, said in a post on X.

Greenspan, who was first nominated by President Reagan, served as Fed chair for nearly two decades.

"We are going back to the days of Alan Greenspan when FOMC statements were deliberately minimalist, opaque ('constructive ambiguity'), and focused on actions, not explanations," Jeffrey Roach, chief economist for LPL Financial, similarly noted in a statement.

Warsh acknowledged this shift at Wednesday's press conference.

"It's a bit shorter, a bit simpler, and it dispenses with some older language," he said. "That statement just gives you the facts as best we can judge it. Absent also is so-called forward guidance, which we agreed was not well suited to the current policy conjuncture."

Updated at 3:27 p.m. EDT