If President Donald Trump still had hope that his nomination of Kevin Warsh as the new chairman of the central bank would lead to a rapid interest rate cut, then there is probably little left of it after Wednesday. The Federal Reserve is starting to think about an increase before 2026, it became apparent on Wednesday after the first meeting led by Warsh.
Nine of the nineteen members of the committee that deals with interest rates – of whom only twelve are allowed to vote – expect that interest rates will rise further this year. That is a huge turnaround compared to three months ago, when the majority still assumed that an interest rate cut would follow in 2026.
The outcome of the meeting is a setback for Trump, who has been obsessed with the idea of a rate cut since taking office. The American president – who emphatically does not discuss interest rates – hopes to stimulate the economy because borrowing and investing costs less when interest rates are lower. He put pressure on Warsh’s predecessor, Jerome Powell, to lower interest rates – without success.
This month, Trump again started talking about the need for interest rate cuts. That idea was not at all unthinkable in early 2026. But the enormous price shock of the Iran war has significantly changed the views of many members of the Federal Open Market Committee (FOMC), which determines interest rates, it became apparent on Wednesday. Inflation in the US now stands at a hefty 3.8 percent, and to combat it, an interest rate increase now seems more logical, according to a large part of the committee.
The Fed officially targets an inflation rate of 2 percent, in its dual mandate, which further consists of maximum employment. On Wednesday, the bank kept the interest rate constant, as expected, at a range of 3.5 to 3.75 percent. There was a unanimous vote for this.
Depicted as a puppet
In his first press conference, Warsh himself was vague about what exactly he thinks are logical steps for the rest of 2026. But he certainly did not speak out in favor of lower interest rates, in line with his own statements that he would not be a puppet of Trump. Democrats in Washington have recently tried to portray the new chairman as such.
At the same time, it was clear that Warsh – who previously said he was looking for ‘regime change’ at the Fed – had already left his mark on the central bank in a number of ways. For example, the Fed issued an unusually brief statement of just over a hundred words about the state of the economy. Insight into the considerations that the Fed makes was not included, as was common under Powell.
Warsh spoke of a “shorter and simpler” explanation. “It only reflects the facts.” It has been known for some time that he has little interest in sharing the Fed’s reflections on the economy or future monetary policy. There is even doubt about whether Warsh will continue with the traditional press conference after an interest rate decision (although he seemed to enjoy it quite a bit on Wednesday; he answered many questions with a big smile and jokes).
Warsh, who further reiterated his position that AI will reduce inflation in the long run, further announced the creation of five ‘task forces’. They will investigate what can be improved at the central bank, in the areas of its own balance sheet, communication, economic data, the consequences of AI and inflation.
Financial markets remained calm on Wednesday under the interest rate decision and the press conference. There was no immediate response from Trump, who is in France for the G7 meeting.