The Federal Reserve held interest rates steady on Wednesday as Chair Kevin Warsh and Fed officials contend with volatile oil prices and persistent inflation since the pandemic.
“Economic activity is expanding at a solid pace despite elevated uncertainty that owes, in part, to the conflict in the Middle East,” the Federal Open Market Committee said in a statement.
The Fed has now cited the conflict in the Middle East for contributing to economic uncertainty in four consecutive decisions to keep interest rates where they are.
That hasn’t stopped President Donald Trump — who told Fox News Wednesday morning that the U.S. would “beat the fucking shit out” of Iran — from insisting on lower rates.
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Trump accused board members of standing in the way of lower rates, in a gaggle with reporters Monday.
“Kevin’s fantastic, but he’s got a board, and the board members are very political,” Trump said. “You need the consent of some people that have perhaps bad intentions.”
The Fed’s rate-setting committee voted 9-3 to preserve rates at 3.5 to 3.75% for the fifth consecutive meeting since December, citing elevated inflation stemming in part from energy prices and strong productivity growth and capital investment.
The three officials in the minority voted to raise rates by a quarter percentage point. Officials indicated in their quarterly projections last month — a practice that Warsh has criticized for revealing too much of the central bank’s thinking to eager investors — that rates may rise this year to tamp down inflation.
Warsh is being pulled in opposite directions by high inflation numbers and a president who has made no secret that he wants to see rates slashed to stimulate economic growth. The annual inflation rate slowed from 4.2% in May to 3.5% in June as the U.S. and Iran settled into a ceasefire agreement, according to data from the Bureau of Labor Statistics.
The rate-setting committee maintains a goal of lowering inflation to 2%. The inflation rate last punched in at or below 2% in February 2021.
That goal increasingly appears far away for the central bank. Oil prices surged this month after Trump announced the end of the ceasefire with Iran on July 8.
Warsh has his own qualms with Fed officials.
The Fed chair wants to transform how the Fed communicates with the public. He has criticized officials’ “dot plot” economic projections and the practice of Fed governors delivering speeches on economic topics around the country. Warsh has also shortened interest rate announcements from the FOMC, saying markets are overly sensitive to Fed communications.
Warsh recently appointed five task forces that will examine topics ranging from Fed communications to the impact of AI on the economy and the drivers of inflation. The members include university economists, former foreign central bankers and CEOs.
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