Inflation and Kevin Warsh take center stage at the Federal Reserve’s interest rate meeting - NBC News

The Federal Reserve kept interest rates unchanged Wednesday at Chairman Kevin Warsh’s first rate-setting meeting as the central bank’s leader. “Economic activity is expanding at a solid pace despite elevated uncertainty that owes, in part, to the conflict in the Middle East,” the Fed said in a statement. At a news conference after the statement, Warsh acknowledged that “persistently high prices are a burden for the American people.” The committee also said “job gains have kept pace with the workforce,” a sign of stability to policymakers. Oil prices remain higher by 30% since the start of the year. Wholesale business inflation surpassed 6% in May, and overall consumer inflation rose above 4%, both results of the Iran war energy shock that continues to ripple through the U.S. economy. Asked by NBC News what he would tell the average American about inflation and slowing wage growth, Warsh replied, “If I saw somebody in the grocery store, what I would say to them is that we cannot have a very significant effect on particular prices.” He would also say it’s the Fed’s job “to make sure that those changes in oil or beef or eggs or milk don’t broaden in the economy.” “That’s our commitment,” he added, “and we’re going to deliver on it.” Warsh also was asked whether he has communicated with President Donald Trump since he took his new role. “I don’t have anything for you,” he responded. For his part, Trump said the Fed’s decision Wednesday was “all right, whatever.” Asked about the potential for a rate hike, Trump told reporters in Paris that it’s “hard to believe.” “It’s so unusual, but we have a very good guy over there now, so I’m guided by what he wants,” he said. The vote on rates was unanimous, a contrast from the previous meeting, at which there were four dissents for various reasons. The central bank’s policymakers also released updated economic projections for the next few years. The last time they did so was during the early days of the Iran war, when the shifting economic picture was far less clear. Projections now show that the committee expects 0.25% of rate hikes in 2026, followed by the same amount of cuts in 2027. Policymakers also cut their economic growth projections slightly, from 2.4% to 2.2%. They also reveal that Fed officials expect core inflation, which excludes food and energy costs, to remain elevated at 2.5% through next year. In May, it rose to 2.9%. Only 18 of 19 Fed policymakers submitted projections. “I did not submit a dot,” Warsh said. “For me it’s not helpful.” In a major change from his predecessor, Jerome Powell, the Warsh-led Fed dramatically shortened the announcement on interest rates, making no mention of what it might do next and eliminating detail about what measures the Fed is watching to assess future moves. The Fed said that “the committee will deliver price stability,” one of its two congressionally mandated duties. The statement did not mention full employment, which is the Fed’s second mandate. The statement was just 130 words, a massive cut from the 341 words in the final Powell-led Fed meeting on April 29. Warsh had suggested before he became chairman that the Fed needed “regime change.” At Wednesday’s news conference, he announced the creation of five task forces that would begin work in the next “couple of weeks” reviewing the Fed’s communications, as well as critical areas of monetary policy, such as inflation, its sources of data, balance sheets and productivity. Asked whether the Fed’s long-standing 2% target for inflation was on the table for the task force, Warsh said he did not believe in revisiting that target until it had been reached. After the news conference, stocks sold off as traders projected a better than 90% chance of a rate hike by October. The S&P 500 closed down 1.2%, the Nasdaq Composite fell 1.3%, and the Dow slid 506 points. The 10-year Treasury yield, which heavily influences consumer borrowing rates, shot up to nearly 4.5% by 4 p.m. ET. “The risk of a rate hike has increased significantly, as has the potential timeline for a hike,” Evercore’s Krishna Guha said in a note after Warsh spoke. “July still looks too soon but not now inconceivable and September must be in play if the next few inflation prints are unfavorable.” “Markets will have to get used to a difficult transition to the new Fed era,” he added.