Federal Reserve Chair Kevin Warsh held interest rates steady at his first policy meeting on Wednesday — departing sharply from his predecessor’s communication style and signalling the beginning of what he has called a “regime change” at the central bank.
The Federal Open Market Committee voted 12-0 to hold the benchmark federal funds rate at 3.5% to 3.75%, its fourth consecutive hold since the last cut in December 2025. The hold itself surprised no one; what did was how Warsh announced it.
The Fed’s policy statement came out significantly shorter than those issued under former Chair Jerome Powell, stripped of what Warsh called “outdated language” and any hint of where rates were heading. He told reporters the new approach was “curt” by design, and that the committee had deliberately chosen to drop forward guidance. “I’ve got nothing more to say than the statement itself,” he said at one point. He also hinted at fewer press conferences going forward.
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Warsh announced five task forces to review the Fed’s monetary policy, communications, data sources, productivity analysis, and labour market framework — a sign he intends to reshape the institution beyond the rate-setting table.
The Powell-era Fed used forward guidance extensively to prepare markets for rate moves. Warsh basically just told markets to figure it out themselves.
The news underneath the messaging was stark. Nine of the Fed’s 18 rate-setters now pencil in at least one hike before year-end — six of them project two. Only one official projected a cut. The Fed revised its year-end PCE inflation forecast up to 3.6% from 2.7% in March and cut its GDP growth projection to 2.2% from 2.4%.
The Consumer Price Index hit 4.2% in May — the highest annual rate since April 2023 — driven partly by energy supply shocks from the Iran war. The policy statement cited those shocks directly.
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Markets responded sharply. The Dow shed 507 points while the S&P 500 and Nasdaq fell 1.21% and 1.34%, respectively. Two-year Treasury yields surged 16 basis points to 4.21%, reaching levels not seen in over a year. The US dollar index climbed roughly 1%; gold fell more than 2%.
Also read: Why Trump said he loves the inflation
President Trump, speaking to reporters in Paris, said high rates “keeps the country down” — but stopped well short of the direct attacks he repeatedly levelled at Powell for holding rates steady. Warsh, confirmed by the Senate on May 13, has vowed the Fed will remain “strictly independent.”
If the US-Iran memorandum of understanding holds and the Strait of Hormuz fully reopens, the energy price pressures driving inflation could ease — potentially removing the case for a rate hike before year-end. Whether the 60-day negotiations produce a durable agreement may matter as much for monetary policy as anything the FOMC decides.
Also read: Relief, then compliance: The US-Iran agreement explainer
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