The Federal Reserve held interest rates steady Wednesday at Kevin Warsh’s first meeting as chair, as Americans struggle with an inflation surge that has pushed prices to their highest level in years.
It was the fourth-straight meeting in which the central bank left rates unchanged, despite pressure from President Donald Trump for cheaper borrowing costs. Trump has recently moderated his tone, saying after Warsh’s swearing-in that the new chair should “do whatever he wants,” though he cautioned against the need for rate hikes to dent rising inflation.
Wednesday’s move came as inflation jumped above 4 percent last month for the first time since 2023, remaining well above the Fed’s 2 percent target. Energy prices, driven higher by the Iran conflict, have put Warsh in the uncomfortable position of inheriting an economy where the political pressure runs in one direction and the price data in another.
The Fed substantially shortened the statement it releases, eliminating guidance for how it might adjust interest rates in the future. The half-page statement acknowledged that inflation remains elevated but said the Fed “will deliver price stability.” The decision capped a two-day policy session that was the first Warsh presided over since the Senate confirmed the longtime Fed critic to run the central bank last month.
Investors are watching closely for any indication of where rates go from here and will be closely monitoring Kevin Warsh’s 2:30 p.m. news conference.
A ceasefire agreement to reopen the Strait of Hormuz has raised hopes that some of the energy-driven price pressure could ease in the months ahead. But economists and former Fed officials caution that relief, if it comes, will arrive slowly and that prices were already elevated before the conflict.
Inflation “rises like a rocket and falls like a feather,” said Patrick Harker, a former president of the Philadelphia Fed and a professor at the University of Pennsylvania’s Wharton School.
Krishna Guha, an analyst at Evercore ISI, said easing energy prices could provide some relief in the months ahead. But he cautioned that the interest rate outlook has become untethered from oil prices — a sign of deeper uncertainty about whether underlying inflation will cool enough to keep the Fed from eventually having to raise rates. Beyond energy, Guha said, two other pressures remain: the ongoing pass-through of tariffs and cost spillovers from the boom in artificial intelligence infrastructure investment.
Before his confirmation, Warsh argued the Fed had room to cut rates, a message that aligned with Trump’s long-standing preference for cheaper borrowing. Now, with inflation reaccelerating, that window appears to have closed for the time being.
Warsh has also signaled he intends to offer fewer forward-looking clues about the Fed’s next move than his predecessors, arguing that the central bank’s economic forecasts tend to be wrong and constrain its flexibility.
In quarterly economic projections regularly released by the Fed, nine of the officials who participate in Fed policy meetings penciled in at least one rate hike through the rest of the year. Eight officials anticipated no change in borrowing costs. One signaled a cut. And one didn’t submit a projection at all.
Jerome H. Powell, whose term as a Fed governor runs until 2028, remains on the seven-member central bank board in Washington — an unusual arrangement that leaves Warsh to chair a committee that includes his predecessor. After eight years in charge of the central bank, Powell’s term as chair expired last month.
The White House, meanwhile, has sought to pressure against rate hikes.
Peter Navarro, Trump’s top trade adviser, argued in an essay last week that the spike in energy prices has not bled into other categories of the economy in ways that would justify a monetary response — and urged the Fed not to raise rates.
Yet inflation has remained above the Fed’s 2 percent target for five consecutive years, with virtually no progress made in 2025 and prices now moving higher. The energy shock is the latest in a succession of disruptions — pandemic supply chains, the war in Ukraine, tariffs, the Iran conflict — that have kept prices persistently elevated even as each individual shock was dismissed as temporary.
Raising rates carries its own risks. Higher borrowing costs would bear down on an economy already squeezed by energy prices, potentially pushing up unemployment and slowing growth — the classic dilemma the Fed faces when inflation is driven by supply disruptions rather than excess demand. Unlike the pandemic, when a red-hot labor market gave the Fed room to tighten aggressively, the current economy offers no such cushion.
Claudia Sahm, chief economist at New Century Advisors and a former Fed economist, said she doesn’t yet see the conditions — an overheating labor market or expectations for inflation becoming unmoored — that would typically warrant a Fed response to supply-driven inflation.
But she acknowledged the case for action is building. “I can see the case that the Fed should be ready to, if things worsen, step in and raise rates,” she said. The Fed could move faster than it did during the pandemic inflation surge, she added, because “they’re already having this debate.”
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