Fed meeting recap: FOMC holds interest rates steady, Kevin Warsh signals a break from tradition

• Warsh plans to do away with traditions: Changing everything from policy statements to AI use, Warsh plans to overhaul how the FOMC operates.
• An end to forward guidance: Warsh chose not to contribute to today's dot plot and plans to reevaluate economic predictions at the Fed, in part so markets can focus more on real-time data.
• A slew of task forces: Warsh introduced new independent task forces on AI, jobs, communication, productivity, and the balance sheet to evaluate central bank operations.

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Conventional wisdom holds that, typically, cutting rates to juice the job market would drive up inflation, and vice versa. Warsh said he doesn't believe in having to make a choice on the Fed's dual mandate.

"If we do our job, we can make strong growth, low prices, and strong employment mutually compatible," Warsh said. "What you heard from the committee today is we've got some work to do on the price stability front."

To no one's surprise, Warsh is optimistic about the impact of AI on the economy. "You may have heard me say before that AI is shorthand for American ingenuity," he said, adding that any job market disruptions will be short-lived. "The United States is a winner as we go down this and will ultimately be better off," he said. Warsh would like to incorporate more AI into the Fed's work — "We have a task force for that."

While Warsh doubled down on his commitment to stable costs, he said: "We cannot have a very significant effect on particular prices." He added that the price Americans pay for oil or eggs is not in the Fed's purview, but economic trends over time are.

Warsh chose not to elaborate on today's rate decision, but the FOMC "had a good family fight" about the call, and he feels impressed by the committee.

He added that the central bank "won't be outsourcing our decisions to anybody," but the task forces will help provide more information for the Fed to work with. "What we've given markets, households, and businesses is a commitment to ask ourselves hard questions." But, he acknowledged, "it's a lot of change for the market to digest."

Warsh said he doesn't want markets to be "blind" to data or rely solely on Fed decisions.

"I think financial markets perform best when they react to incoming data," he said. "The more that markets are paying attention to what's happening in the real economy — what's good data, and what's less good data — the more financial markets can price what they believe is the most likely and what is the tail risk." By not providing forward guidance, Warsh said the Fed is encouraging investors to lean on other real-time economic indicators.

With fairly hawkish language, Warsh said he plans to take control of inflation, but do away with "old-fashioned survey methods" used in some economic data. "I would be open-minded if the task force and our own best thinking have recommendations of how those statistics can be brought to a standard of our time."

He said private companies operate on real-time information, not "echoes of history." He gave the monthly jobs report, which is often revised after it's released, as an example of data that could be improved.

While nine members predicted a hike in the coming year — news that moved markets — Warsh said that he did not personally submit forward guidance, a rare move for a Fed chair.

His communications task force will advise on future changes at the Fed. He added that he is excited to "move the Fed forward" and that might mean reevaluating traditions. "We made some changes today and I expect more changes to come," he said.

Warsh and other Fed leaders opted to drop forward guidance because it doesn't feel right "at this moment in time." His task forces will look at the future of these predictions, he said.

He added that the Fed's 2% goal is long-held and will not be reevaluated anytime soon. After years of inflation running above target, Warsh said he feels confident in the FOMC's ability to achieve price stability because "inflation is a choice."

In his new role, Warsh said he will create independent task forces to evaluate the conduct and framework of monetary policy at the Fed, including groups focused on alternative data sources, productivity, jobs, inflation, and the central bank's balance sheet.

The first policy statement under Warsh's tenure was noticeably bare bones, with less explanation of economic conditions than the customary paperwork under Powell. Warsh reiterated today that he does not believe in forward guidance, and his statement "just gives you the facts."

Warsh said he refrained from giving economic projections of his own, including for the dot plot estimates of future interest rates.

Stepping up to the podium, Warsh began the press conference, thanking fellow Fed members for "a warm welcome," "rigorous debate," and "accountability." He said the FOMC's dual mandate — stable prices and a strong job market — are it's "North Star." He said productivity growth is strong, job gains are recovering, and an inflation spike is expected given the Iran War.

"I'm proud to report that members of the FOMC are unambiguous and unanimous," he said. "This committee will deliver price stability."

The June meeting includes the Fed's quarterly economic projections for the coming few years. The FOMC expects core inflation to slow and anticipates that the unemployment rate will hover around 4% over the next few years.

The dot plot — which captures central bank leaders' long-term predictions for interest rates — showed a relatively even split: nine FOMC members anticipate a hold or modest cut this year, while nine project at least one hike.

There were no dissents on Wednesday's vote. The FOMC had disagreed on interest rates at every previous meeting since last July, with four dissents at the April meeting. Today's vote marks a return to the Fed's characteristic uniformity and widespread agreement on the economic situation.

The Fed will keep its benchmark interest rate steady between 3.5 and 3.75%, in alignment with expectations. It's the fourth consecutive rate hold from the committee and the first under Warsh. The chair will soon begin a press conference at 2:30 ET to discuss.

Following the rate decision, Warsh will give his first press conference as head of the central bank. He will likely open with an overview of the Fed's economic outlook, including jobs and inflation. Warsh will then take questions from journalists.

We expect the new chair will be asked about the steep May inflation figure, the FOMC's vote breakdown, the Fed's quarterly economic projections, his relationship with Trump, and his goals for the future.

At its most recent meeting in April, the FOMC had four dissenting votes — the most since October 1992. The Fed has also seen a split vote in every decision since last July.

This growing division is a result of economic uncertainty and differing viewpoints on which side of the Fed's dual mandate — stable prices and a strong job market — is most pressing. Powell said this debate within the FOMC is "healthy." Time will tell if it continues under Warsh's tenure.

The central bank has been bullish about AI gains in recent months, with Powell predicting that new technology will create more jobs than it replaces. He has also said that growing data center infrastructure could provide an economic boost.

Warsh has made himself out to be an AI optimist: "Something that I really do believe is that AI is a testament to American ingenuity," he said during his confirmation hearing. "The United States is the best-positioned country in the world to take advantage of it so that the US economy and US workers benefit from it."

Bitcoin was wavering ahead of the FOMC decision. The apex cryptocurreny was trading around $66,000 per coin, up less than 1% after sliding earlier in the day. While bitcoin is viewed as a risk asset like stocks, the token hasn't rallied alongside equity markets, which have surged on a coctail of bullish catalysts like AI hype and solid earnings.

Crypto traders hoping for a boost from the Fed in the form of lower interest rates are likely to be disappointed. "Buying interest has slowly picked up since the low was hit earlier this month. But it's far too early to know if Bitcoin can build on these gains. Bitcoin is now testing a deep band of resistance which begins around $65,000 and runs up to $70,000," David Morrison, Senior Market Analyst Trade Nation wrote on Wednesday.

Beyond the rate decision itself, investors should keep an eye out for the dot plot in the Fed's quarterly economic projections — a chart showing how many rate changes FOMC members expect over time. Warsh's tone during the press conference will also give insight into where monetary policy might be headed, analysts told Business Insider.

Stocks have neared record highs so far this year, with earnings outpacing the Iran war drawdown. The June meeting comes in the lull between the first and second quarter earnings seasons, which may shape future company guidance.

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Beginning in February, the Iran War sent global oil prices soaring and stalled trade through the Strait of Hormuz. The US and Iran are negotiating a deal to end the conflict, which could ease inflationary pressure.

Stephen Kates, a financial analyst at Bankrate, said the deal won't affect this week's rate decision. "How quickly oil prices will recede, how fast inflation will be impacted, how that may or may not impact the job market — it would be total speculation," he said. "There's no data yet to show us exactly how things are going to play out over the next few days, let alone the next few months."

The central bank's legal woes with the Trump administration aren't fully resolved. US Attorney Jeanine Pirro said she ended the DOJ probe into Powell's handling of construction funds, but she wouldn't "hesitate to restart a criminal investigation should the facts warrant doing so." Powell plans to remain on the FOMC until the situation is fully resolved, but said he will keep "a low profile."

The decision in the Lisa Cook Supreme Court case, over the Trump administration's allegation that the governor committed mortgage fraud, also hasn't been released. Financial and political leaders worry that both cases indicate political overreach and threaten the ongoing independence of the Federal Reserve.

Warsh is taking on the Fed chair role following a career on Wall Street and years as a Fed governor in the late 2000s and early 2010s. While some lawmakers and analysts have lauded his depth of financial experience, others worry that his previous support of President Trump will shape his policy decisions.

"The Senate should not be aiding and abetting Donald Trump's illegal takeover of the Fed by installing his chosen sock puppet as chair," Massachusetts Sen. Elizabeth Warren said at Warsh's confirmation hearing. "It's an invitation for corruption and for economic catastrophe. We have the power to stop it, and we should be using that power."

Three-month average job growth was the best since March 2024 in May, unemployment is low and steady, and prime-age labor force participation ticked up. However, it's still a challenging time to be a job seeker, especially for many white-collar workers.

"This is a labor market that's kind of moving sideways, and my guess is we're probably on track for a few softer prints than what we've seen in the last three," said Jonathan Pingle, the chief US economist at UBS Investment Bank.

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With a reputation for hawkish monetary policy, Warsh steps into the role optimistic about AI and tough on inflation. Investors are eager to see how his approach will differ from Powell's often moderately restrictive policy stance.

Notably, Warsh is the wealthiest Fed chair in history, with over $100 million in his own assets and his wife is heir to the Estée Lauder cosmetics giant. Warsh told lawmakers during his confirmation hearing that he would divest from potential conflicts within 90 days of taking the post.

After inflation reached its highest point since 2023 — hitting 4.2% in May — the Fed is set to keep interest rates steady.

CME FedWatch shows a near-total chance of a hold as of Wednesday morning, with just a 0.4% chance of a hike and no chance of a cut. Keeping rates relatively high could help temper inflation, but it runs the risk of slowing down the job market. The FOMC will have to carefully weigh which side of their dual mandate is most urgent.

Warsh, a longtime Wall Street executive and former Fed governor, will lead his first rate call today. He was nominated to the chair role by President Donald Trump in January and, at first, faced an uphill battle for confirmation.

North Carolina Sen. Thom Tillis and lawmakers across the aisle initially opposed Warsh's candidacy due to the federal investigation into his predecessor Jerome Powell, which many felt jeopardized the central bank's independence. Warsh was confirmed by Congress in May, after the Department of Justice indicated it would drop the case. But Powell is feeling cautious, and said he will remain on the FOMC as a governor until he feels the probe is "well and truly over."