The Federal Reserve held interest rates steady on Wednesday, but the bigger story was the man behind the podium.
In his first meeting as Fed chair, Kevin Warsh struck a firm tone on inflation, signaling that the central bank’s focus remains squarely on getting price growth back under control.
Warsh also used the occasion to preview a broader shakeup at the Fed, signaling plans to rethink everything from economic forecasts and forward guidance to the institution’s use of AI and internal operations.
Warsh’s comments suggested a more hawkish stance on inflation than many investors anticipated from Donald Trump’s appointee to the Fed’s top job. Here is how smart people in business are reacting to Warsh’s first major policy statement.
Donald Trump, US President
President Donald Trump responded to Warsh’s policies on Monday on the tarmac.
“It’s alright. Whatever,” said Trump in response to a reporter who asked if he is aware that the Fed is holding interest rates.
“It could happen,” Trump added of the prospect that the Fed might even raise rates this year. “I mean, it’s hard to believe. It just keeps a country down.”
Mohamed El-Erian, professor of practice at the Wharton School
Top economist Mohamed El-Erian called Warsh “a much-needed, reform-oriented breath of fresh air” on a post on X on Monday and praised the move to create five task forces to initiate reform.
“The new Federal Reserve Chair, Kevin Warsh, adopted a highly welcome change during his opening remarks at the press conference following today’s policy statement,” wrote El-Erian.
“Underpinning his emphasis on accountability, his delivery was noticeably more open, engaging, concise, and honest,” El-Erian added.
Liz Thomas, chief market strategist at SoFi
Warsh’s first meeting as Fed chair made clear that he wants to update how the central bank operates and communicates, SoFi chief market strategist Liz Thomas wrote, pointing to his new task forces and a shorter policy statement that dropped forward guidance.
“While this gives the market less to react to, perhaps it’s a good thing. In my opinion, markets tend to overreact to Fed commentary and can swing widely depending on how investors interpret its messages,” Thomas wrote in her weekly newsletter on LinkedIn.
Even so, Thomas said the meeting was broadly hawkish.
Still, she does not expect a rate hike this year, arguing that the bigger risk is that tighter policy could dampen growth.
Jeffrey Gundlach, CEO of DoubleLine Capital
DoubleLine Capital’s Jeffrey Gundlach told CNBC on Monday that Warsh’s focus on restoring price stability reduces the chances of the Fed cutting rates too aggressively and reigniting inflation.
“He is absolutely telling you that he plans on delivering on price stability,” said Gundlach. “We’re not going to have such easy money policy as everybody thought maybe Chairman Warsh would do back in the first quarter of this year.”
“I think there’s a greater reason to own long-term Treasuries today now that the new sheriff is in town,” Gundlach said. “If you’re going to get price stability, and if he doesn’t deliver on something that can be characterized as price stability, he’s basically announced today that he would be considered a failure.”
Steve Blitz, chief US economist at GlobalData.TS Lombard
“Warsh gave us simple forward guidance — tighter financial conditions and less Fed in the hearts and minds of market participants,” wrote Steve Blitz, the chief US economist at GlobalData.TS Lombard.
Blitz said the Fed’s pledge to deal with inflation was reassuring, but its willingness to let markets play a larger role in setting rates could be unsettling for traders accustomed to taking cues from policymakers. Over time, however, he argued that the approach should ultimately support productivity-led growth by leading to better capital allocation.
He also suggested that Warsh’s broader vision extends beyond the funds rate to shrinking the Fed’s balance sheet, reducing the central bank’s leverage, and encouraging the private sector to take on more.
Diane Swonk, chief economist at KPMG
Diane Swonk, KPMG’s chief economist, wrote on LinkedIn on Monday that Warsh has inherited the Fed’s “hardest problem” — inflation.
“His challenge is to restore price stability without breaking the expansion,” said Swonk. “He abstained from providing a forecast for rates, but it was clear where the committee heading — nearly half in the room penciled in at least one rate hike this year and the market accurately followed suit.”
“We still expect two rate hikes in the back half of the year,” Swonk added.
Bill Adams, chief US economist at Fifth Third Commercial Bank
Warsh’s first meeting as Fed chair reaffirmed that the central bank remains independent of political pressure, according to Bill Adams, the chief US economist at Fifth Third Commercial Bank.
“Both he and the collective weight of the rest of the FOMC used the June decision to indicate that they will hike if needed, shutting that discussion down. The Fed reaffirmed its commitment to operating independently of political pressure,” Adams wrote.
So while the Fed’s economic outlook was largely in line with investors’ expectations, Adams said markets reacted to the meeting by pricing in a greater likelihood of higher interest rates. In his view, that reaction reflected the absence of any sign that political pressure was influencing the Fed.
Jeffrey Roach, chief economist at LPL Financial
Warsh’s meeting signaled a return to a more minimalist style of central banking communication, according to Jeffrey Roach, the chief economist at LPL Financial.
“We are going back to the days of Alan Greenspan when FOMC statements were deliberately minimalist, opaque (‘constructive ambiguity’), and focused on actions, not explanations,” Roach wrote in a note, referring to the former Fed chair’s signature cryptic communication style.
Roach added that the Fed’s terse Wednesday statement and closing line that “The Committee will deliver price stability” amounted to a hawkish message. Still, he argued that inflation is largely supply-driven and could ease if geopolitical tensions in the Middle East subside.
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