The Federal Reserve is setting U.S. interest rates. What will that look like?

JUANA SUMMERS, HOST:

The Federal Reserve held its benchmark interest rate steady today, but the vote was not a slam dunk. Three of the 12 voting members of the committee said they would have preferred to raise rates. The Fed is battling stubborn inflation, which has worsened as a result of the U.S. war with Iran. NPR's Scott Horsley is here in the studio with us now. Hi.

SCOTT HORSLEY, BYLINE: Hi, Juana.

SUMMERS: So, Scott, the Fed has now left interest rates unchanged for, I think, five meetings in a row, but there was more than the usual suspense today. Tell us why.

HORSLEY: Yeah, there was. At a lot of these meetings, the outcome is sort of telegraphed well ahead of time. But the new chairman of the Fed, Kevin Warsh, tries to avoid that kind of signaling. He thinks it ties policymakers' hands. So that left markets kind of guessing about what would happen today. Also, the economic news has been somewhat mixed of late. Inflation hit a three-year high during the spring as a result of the wartime spike in gas prices. Since then, gas prices have moderated a little bit, but we've got renewed fighting in and around the Strait of Hormuz, which has once again sent oil prices climbing. And finally, there's just a range of opinions among members of the Fed's rate-setting committee, which is something Warsh says he welcomes.

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KEVIN WARSH: I asked for a good family fight, and I got one. My view, which you've long heard, is that's the better way to get policy right. That's our North Star.

HORSLEY: Warsh described the discussion at this week's Fed meeting as collegial and constructive. With three regional Fed bank presidents voting to raise interest rates today, it certainly leaves the door open for a possible rate hike at the next Fed meeting in September.

SUMMERS: Now, Warsh has promised repeatedly that he and his colleagues - they'll get inflation under control. But what is that going to take?

HORSLEY: It's probably going to take more than jawboning, which is really what we've heard so far. There is kind of a disconnect between the tough talk from the Fed chairman about getting prices under control and the decision not to raise interest rates, which is the Fed's main tool for fighting inflation. Inflation has now been above the Fed's target for more than five years. Warsh has been critical about that. He's only been on the job for a couple of months. He did promise to deliver price stability, but he understands he does not have unlimited time.

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WARSH: What I hear more broadly from households and businesses - impatience - deliver it already. We are on the job. We are focused like a laser on making sure we can do it. But the suggestion that we're going to be able to do it with our magic wand is one I want to disabuse you and everyone else of.

HORSLEY: Part of the challenge here is that the main drivers of inflation have been supply shocks, like the war with Iran, and the Fed's interest rate tool just doesn't do a whole lot to address that.

SUMMERS: Now, Warsh has promised, as you know, to make other changes at the Fed. What's happening there?

HORSLEY: Yeah. The chairman has named a number of task forces to make recommendations on things like how the Fed communicates, how it measures the economy, how it deals with economic changes, like the rise of artificial intelligence. And the task forces are made up of economists and business leaders from outside the central bank. Today, Warsh was asked about possible conflicts of interest since, you know, for example, the artificial intelligence task force includes a billionaire investor, Marc Andreessen. Warsh says the groups are merely advisory and that any policy changes will be made by the Fed itself.

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WARSH: The comfort that I can give you and your listeners is we're the decision-makers. The judgments we're making will be informed by but not at all determined by these outside groups.

HORSLEY: The task forces are expected to make their recommendations by year's end.

SUMMERS: And, Scott, lastly - how did financial markets react to the Fed's move today?

HORSLEY: Well, not well. The Dow fell more than 1,100 points, and other stock indexes were also down by more than 1.5%.

SUMMERS: NPR's Scott Horsley, thanks.

HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.

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