Fed holds interest rates steady as Trump’s new chairman faces fresh inflation woes

The Federal Reserve on Wednesday kept interest rates unchanged at chairman Kevin Warsh’s first rate setting meeting as the central bank’s leader.

“Economic activity is expanding at a solid pace despite elevated uncertainty that owes, in part, to the conflict in the Middle East,” the Fed said in a statement.

The committee also said “job gains have kept pace with the workforce,” a sign of stability to policymakers.

Oil prices remain higher by 30% since the start of the year.

Wholesale business inflation surpassed 6% in May and overall consumer inflation rose above 4%, both a result of the Iran war energy shock that continues to ripple through the U.S. economy.

The vote on rates was unanimous, a contrast from the prior meeting at which there were four dissents for various reasons.

The central bank’s policymakers also released updated economic projections for the next few years. The last time they did so during the early days of the Iran war, when the shifting economic picture was far less clear.

Projections now show that the committee expects 0.25% of rate hikes in 2026 followed by the same amount of cuts in 2027. Policymakers also cut their economic growth projections slightly from 2.4% to 2.2%.

They also reveal that Fed officials expect core inflation, which excludes food and energy costs, to remain at an elevated 2.5% through next year. In May, it rose to 2.9%.

Only 18 of 19 Fed policymakers submitted projections, likely indicating that Warsh did not participate.

In a major change from his predecessor Jerome Powell, the Warsh-led Fed dramatically shortened the announcement on interest rates, making no mention of what the Fed might do next and eliminating detail on what measures the Fed is watching to assess future moves.

The Fed said “the committee will deliver price stability,” one of its two congressionally-mandated duties. The statement did not mention full employment, which is the Fed’s second mandate.

The statement was just 130 words, a massive cut from the 341 words in the final Powell-led Fed meeting on April 29.

Warsh had suggested prior to becoming Fed Chair that he wanted to streamline Fed communications.

Stocks sharply dropped after the Fed’s announcement, while Treasury yields surged to the highest levels of the day. As of 2:10 p.m. ET, the 10-year Treasury yield, which heavily influences consumer borrowing rates rose to as high as 4.47%, its highest level since earlier this week.