Fed holds rates at 3.5–3.75% in Kevin Warsh's first decision, defying Trump's demand for cuts

Warsh's first move

In his debut meeting as Fed Chair, Kevin Warsh led the Federal Open Market Committee to a unanimous vote to keep the federal funds rate unchanged. The decision marks the fourth consecutive pause in 2026, leaving the target range at 3.5 to 3.75 percent. Warsh, appointed by President Trump last month, had faced intense pressure from the White House to deliver a rate cut, but the committee's concerns over elevated inflation prevailed.

Das war seinem Verständnis nach die Absprache, die er mit Kevin Warsh hat. Hier die richtige Geldpolitik zu finden, dürfte in diesem Jahr ein politisches Minenfeld werden.

The Trump pressure

Trump handpicked Warsh to replace his frequent antagonist Jerome Powell, explicitly expecting the new chair to lower borrowing costs. The president's interventionist stance has raised fears among economists that the traditionally independent central bank could see its objectivity compromised. Warsh, however, stated he made no promises to Trump, and on Wednesday he declined to bow to the White House demands.

Ich glaube schon, dass es das Leben von Kevin Warsh einfacher gemacht hat.

Inflation and the Iran factor

The global backdrop is dominated by the Iran war, which has disrupted oil tanker traffic through the Strait of Hormuz and sent US energy costs soaring. Consumer prices rose 4.2 percent year-on-year in May, the fastest pace in three years and well above the Fed's 2 percent target. Gasoline prices jumped roughly 40 percent. The preliminary US-Iran framework agreement, however, has pushed crude prices lower and eased some of the immediate inflation fears, giving Warsh breathing room.

Warsh's own bets

Behind the scenes, the new chair is banking on a very different force to contain inflation: artificial intelligence. Warsh believes that rapid AI-driven productivity gains will prove deflationary over time, reducing the urgency for aggressive rate hikes. Some market analysts warn this thesis is risky.

Wir müssen uns jetzt keine Sorgen machen über Inflation, weil sowieso Deflation kommen wird durch den Einsatz von KI. Das ist natürlich eine gefährliche Sache, falls es dann doch nicht so kommt.

A quieter Fed

The meeting also saw a stylistic shift. Warsh declined to participate in the committee's quarterly economic projections, leaving just 18 anonymous estimates instead of the usual 19. He has signaled a preference for a less verbose central bank that offers fewer forward-looking signals, a break from the Powell era. Across the Atlantic, the European Central Bank last week raised its deposit rate for the first time since 2023, underscoring a growing divergence among major monetary authorities.