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New US Federal Reserve chairman Kevin Warsh (L) is likely to face pressure, as his predecessor did, from President Donald Trump to lower interest rates (Aaron Schwartz) \u00b7 Aaron Schwartz\/AFP\/AFP <\/p>\n New US Federal Reserve chairman Kevin Warsh (L) is likely to face pressure, as his predecessor did, from President Donald Trump to lower interest rates (Aaron Schwartz) \u00b7 Aaron Schwartz\/AFP\/AFP <\/p>\n
The US Federal Reserve on Wednesday held interest rates steady as expected at Kevin Warsh’s first meeting in charge of the central bank, raising its year-end inflation expectations and projecting a rate hike by the end of 2026.<\/p>\n
The Fed decided to hold rates steady at 3.50 to 3.75 percent for the fourth consecutive meeting, with the vote being unanimous for the first time in a year.<\/p>\n
Policymakers said economic activity was “expanding at a solid pace despite elevated uncertainty that owes, in part, to the conflict in the Middle East.”<\/p>\n
“Inflation remains elevated relative to the Committee’s 2-percent goal, in part reflecting supply shocks that have driven price increases in certain sectors, including energy.”<\/p>\n
The decision came at the first meeting of the Federal Open Market Committee (FOMC) since Warsh took charge at the central bank.<\/p>\n
Republican President Donald Trump has pushed an unprecedented campaign of intimidation to pressure the Fed to lower interest rates.<\/p>\n
However, US inflation came in at a three-year high in April, fueled by Trump’s war on Iran, which saw energy prices skyrocket, with knock-on effects on a range of sectors in the world’s largest economy.<\/p>\n
On Wednesday, Fed leaders also released their Summary of Economic Projections, raising year-end PCE inflation expectations to 3.6 percent from 2.7 percent in March.<\/p>\n
American households have been battered by years of rising prices, with inflation climbing above the Fed’s long-term two-percent target.<\/p>\n
Warsh has backed interest rate cuts in the recent past, despite inflation remaining well above the target — it was 3.8 percent in April, according to the central bank’s preferred gauge.<\/p>\n
As expected by analysts, Warsh appeared to join other policymakers in allowing the energy price shock before making a move.<\/p>\n
“I think he’s going to be in the wait-and-see camp,” said Dan North of Allianz Trade. “It’s pretty hard to justify a cut when you’ve got inflation in the pipeline already.”<\/p>\n
– Hike expected by year end –<\/p>\n
Before the war, markets had priced in at least one interest rate cut by the end of the year, but that has changed to the expectation of a hike at the Fed’s December meeting.<\/p>\n
On Wednesday, Fed policymakers raised their projected year-end interest rate, signalling that they expected one interest rate hike by the end of 2026.<\/p>\n
The Summary of Economic Projections was based on input from 18 of 19 policymakers, with one withholding their projection, the Fed said.<\/p>\n
Fed Chair Warsh has said he wants to reduce the amount the central bank communicates about its decisions and was widely expected to withhold his projections.<\/p>\n
That is part of Warsh’s “reform-oriented” agenda. He has called for the Fed to scrap its “dot-plot,” a group-tracking of Fed leaders’ expectations on rates, while keeping private each board member’s individual opinion.<\/p>\n
Wednesday’s statement was shorter than normal, and removed the forward guidance on the direction of the interest rate, which has been a constant in recent years.<\/p>\n
US inflation came in at 3.8 percent in April, according to the Fed’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) prices index.<\/p>\n
– ‘Not helping his case’ –<\/p>\n
Pao-Lin Tien, an economics professor at George Washington University, told AFP that moving towards more opaque monetary policymaking could mean inflation expectations are less anchored.<\/p>\n
“I think our fear would be that without the forward guidance, inflation expectations might become a little bit more volatile,” she said.<\/p>\n
Trump is likely to be angered by anything short of a rate cut. The 80-year-old Republican wants to see the Fed lower borrowing costs to increase economic activity — despite the already high inflation.<\/p>\n
“President Trump is not helping his own case by making these demands so openly, it makes it harder for anyone he appoints to actually do that,” said Tien.<\/p>\n
“He does the opposite of what he needs to do in order to make sure the rates go lower,” she added, referring to the war on Iran.<\/p>\n
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