Fed holds rates steady for fourth time in Kevin Warsh's debut meeting, defying Trump pressure
The Federal Reserve kept its benchmark interest rate unchanged at 3.50-3.75% on Wednesday, the fourth consecutive hold and first meeting under new chair Kevin Warsh, as rising inflation and a fragile US-Iran peace deal complicated any shift.
Decision
All 12 voting members of the Federal Open Market Committee supported leaving rates in the 3.50-3.75% target range, a decision widely anticipated by markets. The hold extends a pause that began in January after a string of three 25-basis-point cuts ended in December 2025. It was the first policy meeting chaired by Kevin Warsh, who was nominated by President Donald Trump in late January and took office in May.
Economic activity is expanding at a solid pace despite elevated uncertainty stemming in part from the Middle East conflict. Productivity growth and capital investment remain strong.
Inflation pressures
The backdrop is the highest consumer inflation in nearly three years. Headline CPI reached 4.2% in May, the fastest since April 2023, driven by energy costs after the Iran conflict disrupted oil flows through the Strait of Hormuz. Core inflation, which strips out volatile food and energy, climbed to 2.9%, still well above the Fed's 2% target.
- Headline CPI
- 4.2 %
- Core CPI
- 2.9 %
- Fed target
- 2 %
Political tensions and internal debate
Trump spent months pressing for rate cuts and had clashed aggressively with previous chair Jerome Powell, whom he threatened with dismissal and backed investigations into the Fed's spending. Warsh had signalled dovish leanings during the nomination process, but rising prices and a tight labour market narrowed his room to act. During Warsh's swearing-in, Trump struck a different tone.
I want Kevin to be totally independent. Don't look at me, don't look at anyone, do your thing and do a great job.
Inside the FOMC, views are split. Some governors have discussed hiking rates to contain inflation, while others, closer to the White House, favour patience. Powell still sits on the committee as a governor, and the departure of Trump adviser Stephen Miran in May shifted the balance slightly.
Geopolitical pivot
A preliminary US-Iran peace deal announced on Sunday pushed oil prices lower and temporarily cooled expectations for an imminent rate hike. Crude prices remain about 30% higher than at the start of the year, however, and the full economic scars of the Strait of Hormuz blockade are still unfolding. The Fed opted to wait for clearer price signals before adjusting policy.
Divergence with the ECB
The decision widens a transatlantic gap. The European Central Bank raised its key rate by 25 basis points last week to reinforce its inflation fight. Markets now see a rising probability that the Fed will be forced to hike before December, though Warsh's first press conference was expected to offer guidance on how the new chair balances dovish convictions with tightening realities.
The implication of President Trump in the recent appointment of Kevin Warsh as Fed chair may have led many to assume a moderate-leaning member is taking control of the FOMC. We'll know more when Warsh holds his first press conference.
