Kevin Warsh’s First Interest Rates Decision: Keep Things Steady

The Federal Reserve’s new chair, under immense pressure from President Donald Trump to lower interest rates, is keeping rates steady for now.

It was the first test of Kevin Warsh’s commitment to maintaining the independence of the central bank as Trump continues to call for sweeping rate cuts.

The Federal Open Market Committee maintained rates at 3.5 to 3.75% on Wednesday, citing economic uncertainty in the Middle East and high inflation. All twelve members, including Warsh, voted to hold rates.

“Economic activity is expanding at a solid pace despite elevated uncertainty that owes, in part, to the conflict in the Middle East. Productivity growth and capital investment are strong.

Job gains have kept pace with the workforce, and the unemployment rate has changed little.” the committee wrote in a statement.

The committee also removed the easing bias, language that indicates the committee seeks to lower rates in its next meeting. Warsh has said the Fed should reel in its communications to the public about its policymaking, with Fed governors making fewer public appearances and the central bank releasing fewer economic forecasts, including “dot plot” projections.

That easing language was absent from the Fed’s statement on Wednesday.

Warsh’s calls to limit the Fed’s public communications rankled some on Capitol Hill.

“I don’t know if I agree with Kevin on that, but he deserves to try it his way, and it may work better,” Sen. John Kennedy (R-Louisiana) said on Tuesday.

“I’m very uneasy when the head of any government agency says they would like less transparency into their actions and thinking,” said Sen. Elizabeth Warren (D-Massachusetts), who has accused Warsh of serving as Trump’s “sock puppet.”

Economists widely expected the committee to cut the easing bias and maintain rates, as the Iran war supercharged inflation and Trump’s fluctuating tariff rates raised prices for consumers. The Trump administration has argued that oil prices will plummet when the Strait of Hormuz reopens, following the pending U.S. peace deal with Iran, but economists predict high prices for food and consumer goods will linger for months.

As Warsh confronts the choice of whether to deliver on Trump’s hopes for low rates, the economic and political environment is becoming less favorable to rate cuts.

The Federal Reserve has kept interest rates steady since December due in part to deep economic uncertainty stemming from the Middle East conflict. The annual inflation rate has accelerated each month since the war began, hitting 4.2% in May after cooling in the new year. The Fed aims to push inflation back down to 2%.

“The signals are probably not pointing towards cutting interest rates, but at the same time that would risk angering President Trump. But since again, President Trump’s current approval rating is low, the cost of that to him personally, politically, is probably a little lower than it would be if President Trump’s approval ratings were extremely high right now,” Erasmus Kersting, an economics professor at Villanova University, said on Wednesday morning.

Lawmakers on Tuesday anticipated the Fed’s decision to keep rates steady, too.

“My guess is they’re going to maintain the status quo. They’re probably worried about inflation, the job market has held up pretty well. We’re not growing a huge number of jobs, we’re still creating jobs, but nobody’s being laid off either,” Kennedy said.

“I don’t see how he could decide to lower interest rates at this moment,” Sen. Tina Smith (D-Minnesota) said.

Many Republicans, however, said they still wanted the Fed to cut rates.

“Hopefully, those rates will come down,” Sen. Jim Banks (R-Indiana) said.

Warsh kept his options open for future interest rate decisions and communications about those decisions at his Senate confirmation hearing in April.

“I tend to favor messier meetings than some, where people don’t show up with rehearsed scripts, but we can have a good family fight,” Warsh said. “I’m not one for predeciding what interest rate should be. I never said to the president where I think rates should be.”

Trump touted positive economic indicators in a TruthSocial post on Wednesday morning.

“Great Numbers in all categories for the United States Economy with more people working today than have ever worked before,” Trump wrote on TruthSocial Wednesday. “Importantly, recent Stock Market numbers are through the roof because of the settlement and, likewise, Oil Prices are tumbling down!”

The economy added over 150,000 jobs in each of the previous three months, and the stock market has continued to grow this year.

The president said in an interview with NBC News in February that then-nominee Warsh “would not have gotten the job” if he did not want to lower interest rates. But in May, Trump told Warsh at his swearing-in ceremony that he wants the Fed to be independent and “do your own thing.”

When asked about the decision to keep the rates steady Wednesday, Trump defended Warsh.

“It’s alright... We have a very good guy over there now, so I’m guided by what he wants to do,” Trump told reporters.

Trump’s words were an apparent reversal from months of public pressure on the previous chair, Jerome Powell, to slash rates. Powell said Trump opened a criminal investigation into his handling of the Fed’s multibillion-dollar building renovation as political pressure.

Jeanine Pirro, the U.S. attorney for the District of Columbia, closed the probe in April, after intense criticism from Republicans and a campaign by Sen. Thom Tillis (R-North Carolina) to block Warsh’s confirmation process until the investigation was closed. The Fed’s inspector general will investigate Powell instead.

Powell remains on the Federal Reserve Board of Governors until his term expires in 2028. He has said he will remain on the board until the investigation is “well and truly over.”

Powell’s decision to stay pushed out an ally of the president on the 12-person rate-setting committee. Fed Governor Stephen Miran — who took over the role in September after chairing the White House Council of Economic Advisers — resigned in May.