Federal Reserve holds rates steady at Warsh’s first meeting

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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.

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 (CPI), 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 above $100 per barrel amid the conflict, fell to about $77 per barrel on 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.

This 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.

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 on 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.

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Donald Trump

Jeanine Pirro

Jerome Powell

Kevin Warsh

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