The Federal Reserve held interest rates steady and officials readied for higher borrowing costs, as inflation fears dominated Kevin M. Warsh’s first meeting as chairman of the central bank.
The decision on Wednesday to maintain rates at a range of 3.5 percent to 3.75 percent for a fourth-straight meeting was supported by all 12 members of the Federal Open Market Committee. It was the first policy vote since June of last year that did not feature some form of opposition.
But the apparent unanimity among officials belies the very challenging position Mr. Warsh finds himself in now that he is at the helm of the Fed. Mr. Warsh was handpicked for the job by President Trump, who has waged a relentless pressure campaign on the central bank in a bid for lower borrowing costs.
Delivering that has become all but impossible because of the war with Iran and the inflation surge that it has unleashed. A tentative deal has been reached to end the conflict, but the economic blow is poised to be much longer lasting.
Asked about the Fed’s decision to maintain rates, Mr. Trump told reporters on Wednesday: “It’s all right, whatever.”
Later, when asked about the prospect of a rate increase soon, he said: “It could happen. It’s hard to believe. It just keeps our country down. It’s so unusual.”
Mr. Warsh’s new colleagues have not only rejected the idea that rates can fall anytime soon, but many have also embraced the possibility of having to raise them to bring inflation back to 2 percent — a target they have missed for five years. New projections released alongside Wednesday’s rate decision underscored this shift, sending stock markets tumbling. Investors are now bracing for a rate increase at the Fed’s meeting in October.
According to the latest “dot plot,” which tracks what policymakers think will happen to borrowing costs over the coming years, roughly half of the officials forecast one or more quarter-point increases from the Fed by year-end. Three people penciled in just one increase, while five thought the Fed would need to raise rates by half a percentage point. One person thought the Fed would need to raise rates by three-quarters of a percentage point.
Eight officials were of the view that rates could remain unchanged by year-end, and only one person penciled in a quarter-point cut.
The dot plot had fewer entries than usual. Mr. Warsh confirmed he was the only official who did not submit any projections, while another policymaker opted against submitting projections just for 2028. Mr. Warsh has argued that Fed officials should speak less frequently and forgo providing specific guidance about where rates may be headed in the near term to avoid limiting their ability to pivot if the economic backdrop changes.
In keeping with that view, Mr. Warsh avoided giving any kind of steer on his thinking about the outlook for rates on Wednesday. The only thing he was explicit about was that the Fed would prioritize delivering on price stability, a pledge that was also included in the policy statement.
The statement on Wednesday was significantly scaled back. The Fed scrapped a portion that had previously detailed the conditions under which the central bank would consider cutting rates again. It had become problematic for many officials, who preferred more neutral language that conveyed that a rate increase was just as feasible.
Officials have embraced that possibility because of mounting concerns about inflation, which is running at a three-year high. Even before the war, price pressures were proving unexpectedly sticky in services sectors like hospitality and transportation. A surge in spending related to the proliferation of artificial intelligence and a booming stock market have helped to further turn up the heat.
In their new projections on Wednesday, policymakers substantially raised their forecast for inflation, as measured by the Personal Consumption Expenditures price index, compared with three months ago. They now expect overall inflation to end the year at 3.6 percent and for “core” inflation, which strips out volatile food and energy prices, to register a 3.3 percent pace. As of the latest data in April, P.C.E. inflation accelerated to 3.8 percent compared with the same time last year, while core P.C.E. was up 3.3 percent. The Fed aims for 2 percent inflation.
They also forecast the economy growing at a steady 2.2 percent clip this year and unemployment remaining stable at 4.3 percent.
Rising inflation and a steady policy rate translate to a lower inflation-adjusted or “real” interest rate, meaning the Fed is not restraining the economy as much as it once was. That risks making the Fed’s inflation problem even worse, especially at a time when the labor market has strengthened and the economy more broadly is holding up well.
Mr. Warsh shared that he thought rates were restrictive in some sectors like housing, where there has been a sharp slowdown, but not so much in the financial markets, which have continued to hit new highs. “It’s uneven,” he said.
Mr. Warsh is having to navigate these economic crosscurrents while also trying to make good on his pledge to lead a “reform-oriented” Fed. On Wednesday, he announced the creation of five task forces that will focus on issues that Mr. Warsh said were “central to the broad conduct of monetary policy.” They include efforts to reform the Fed’s communications framework; its massive $6.7 trillion portfolio of government debt and mortgage-backed securities; the data sources it prioritizes; how it thinks about productivity trends and jobs; and the models and measures it uses to understand inflation.
He said he wanted the work to be completed by year-end.
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