Key facts
- New Fed Chair Kevin Warsh faces his first policy meeting amid rising inflation and President Trump's calls for lower rates.
- Policymakers are expected to keep U.S. short-term borrowing costs on hold all year, with a small number potentially penciling in a rate hike.
- Updated economic projections may signal fewer rate cuts than previously forecast, marking a hawkish shift.
- Warsh's participation in the Fed's 'dot plot' projections is uncertain.
Federal Reserve Chair Kevin Warsh is set to lead his first monetary policy meeting, a closely watched debut that could offer investors and economists important clues about the future direction of U.S. interest rates. The backdrop for Warsh’s first policy meeting is complex, with inflation climbing and the labor market showing resilience. Policymakers are expected to keep U.S. short-term borrowing costs on hold all year, with a small number potentially penciling in a rate hike to curb inflation. This anticipated adjustment to the Fed's 'dot plot' would mark a hawkish shift from three months ago.
President Donald Trump picked Warsh to replace Jerome Powell with the explicit expectation that his new Fed chief would lower interest rates. However, Warsh has stated he has made no promises and does not believe in giving guidance. The biggest question surrounding the Fed's June projections is Warsh's own participation in the 'dot plot,' a quarterly publication indicating where policymakers see interest rates heading. Some analysts believe he may omit his dot to minimize any hawkish message, while others expect him to participate but potentially review the communication strategy.
In March, most Fed officials anticipated rate cuts by year-end, but stronger job gains and rising inflation have shifted the debate towards the possibility of a hike. The Fed is expected to leave its policy rate in the 3.50%-3.75% range and adjust its statement to remove language suggesting the next move will be a cut. Projections for the labor market and inflation may also reflect greater optimism on jobs and pessimism on prices than previously signaled. Economists polled by Reuters generally believe the Fed will hold rates steady this year, though some, like PGIM, suggest three hikes will be necessary, while others, like Citibank, anticipate three cuts.