US Federal Reserve chief Kevin Warsh will chair his first meeting of the central bank’s rate-setting committee next week, caught between a rock and a hard place.
Inflation is at a three-year high, but Warsh still faces relentless pressure from the White House to cut interest rates.
The bank’s 12-member Federal Open Market Committee (FOMC) will begin a two-day meeting on Tuesday and is widely expected to hold rates steady as the effects of US President Donald Trump’s war on Iran ripple through the world’s largest economy.
Warsh, who was handpicked by Trump, was sworn in last month and has an ambitious and far-reaching reform agenda.
He has previously expressed support for cutting rates — in line with Trump’s demands — but is likely to face resistance from a divided committee.
At the FOMC’s last meeting in April, the Fed kept rates steady from 3.50 percent to 3.75 percent, but the decision saw four dissenting voices — the most since 1992.
Analysts expect the FOMC to deliver a similar decision in June, though with a debate expected over whether to change the Fed’s guidance on what its next move could be — a rate hike or a cut.
“He was appointed as Trump’s pick because Trump was probably influencing him to cut rates,” Dan North, senior economist at Allianz Trade, told AFP.
“I don’t see him being able to do that right now, especially with the inflation data and the job growth data, and what the folks at the FOMC said last time with their dissent.”
– ‘Bring in the family’ –
The Fed has a dual mandate to keep inflation at its long-term target of two percent while ensuring maximum employment.
It usually achieves these goals through decisions on interest rates—lowering borrowing costs to stimulate economic activity or raising them to lower prices.
Before the US-Israel war against Iran sent energy prices skyrocketing, markets had at least one rate cut until the end of 2026.
With inflation fueled by the war, however, the next move is now expected to be a rate hike by December, according to CME’s FedWatch tool.
That is sure to anger Trump, who has launched an unprecedented attack on the Fed’s independence with a criminal investigation into Warsh’s predecessor and an attempt to oust another Fed governor.
Last week, responding to strong U.S. jobs growth figures that suggested the Fed should focus on inflation, Trump said he still wanted lower rates but would let Warsh “make that decision.”
The FOMC decides by majority vote, and even if Warsh argues for a cut, he must convince at least six other policymakers to join him.
At his confirmation hearing, Warsh said he favored “messier meetings,” where policymakers could have “a good family fight.”
“He is entering an environment that is already chaotic,” warned North of Allianz Trade. “I don’t think that’s the family feud he was talking about.”
– “Nothing can want it” –
Greg Daco, chief economist at EY-Parthenon, told AFP Warsh was unlikely to try to make wholesale changes at the meeting – his first chance to sit down with the entire committee and “share his perspective on the economic landscape”.
Warsh has proposed reducing the amount of information the Fed communicates about its decisions: cutting out guidance and forecasts.
“In this first meeting, my guess is that he will stop his projection, but not necessarily change the way he publishes projections,” Daco said.
While most analysts expect rates to be held steady at this meeting, opinions differ widely on what the Fed’s next move might be — whether war-fueled inflation will need to be addressed, or whether it can be treated as temporary.
“The delay in raising rates is riskier today than it was after the economy emerged from the pandemic,” warned Diane Swonk, chief economist at KPMG.
“The persistence of inflation is the hand dealt to Warsh; nothing can wish him.”
As for whether Warsh will bow to Trump’s pressure, “that’s something that will have to be tested,” EY-Parthenon’s Daco said.
“I don’t think we know, to be honest, at this stage.”
