What we're covering
• Decision day The Federal Reserve is set to announce at 2 p.m. ET its latest decision on interest rates, as inflation sits at its highest level in three years.
• New sheriff in town Fed Chairman Kevin Warsh is presiding over his first policy meeting after being sworn in last month. He is expected to announce that the Fed is holding interest rates steady for the fourth-straight time as it monitors rising prices.
• A shift toward hiking President Donald Trump appointed Warsh to cut interest rates and has joked that he would sue his Fed chairman if he does not lower borrowing costs. But Warsh would need to persuade a committee of 11 colleagues, some of whom have already suggested raising rates.
Here's who's voting at the Fed meeting
There have been some personnel changes at the Federal Reserve recently. The biggest one: Kevin Warsh joined the central bank as chairman last month.
Also, former Chair Jerome Powell made the unusual decision to remain at the Fed to serve out a concurrent term on the Fed’s Board of Governors after his tenure as chair ended.
Powell staying on meant that former Fed Gov. Stephen Miran had to resign to make room for Warsh, so he is no longer casting votes at Fed meetings.
Besides Powell and Warsh, here are the other 10 policymakers voting on today’s interest rate decision:
- Vice Chair Philip Jefferson
- Gov. Michelle Bowman
- Gov. Michael Barr
- Gov. Lisa Cook
- Gov. Christopher Waller
- Cleveland Fed President Beth Hammack
- Minneapolis Fed President Neel Kashkari
- Dallas Fed President Lorie Logan
- New York Fed President John Williams
- Philadelphia Fed President Anna Paulson
Dow eyes its third-straight record high
The Dow is up for the fifth day in a row and trying to clinch its third-straight record high.
The blue-chip index is getting a boost as investors take some profits on tech and move into financials and industrials. The Dow was up 172 points, or 0.33%, while the S&P 500 and Nasdaq were each flat.
The Dow closed at 52,000 points for the first time ever on Tuesday. The Dow is up about 8.5% so far this year, while the S&P is up almost 10% and the Nasdaq is up 13.5%.
Here are the top-performing stocks in the 30-company Dow this year:
- Caterpillar shares (CAT) are up 68% this year. The AI data center buildout has boosted demand for construction and power equipment.
- Cisco shares (CSCO) are up 54% this year. The old-school tech company is repositioning itself for the AI boom.
- Goldman Sachs shares (GS) are up 27% this year. Strong earnings and business activity, including SpaceX’s initial public offering, are boosting the bank.
The US-Iran agreement came at just the right time for Warsh
In January, when President Donald Trump nominated Kevin Warsh for the top job leading the US economy, the labor market had just wrapped up one of its weakest years in decades.
Then, the war with Iran caused oil, diesel, jet fuel and gasoline prices to skyrocket, exacerbating the inflation side of the Fed’s mandate.
That raised the risk of Warsh having to lead the Fed through a dreaded two-sided battle, with officials forced to decide whether to rescue the job market by cutting rates or put out the inflation fire by hiking rates.
But now, not only has the job market come back to life, but energy prices are plunging. The US-Iran agreement to halt the 15-week-long war and reopen the Strait of Hormuz has eased fears of a lasting inflation spike, reducing the urgency for Warsh to consider a rate hike in the immediate future.
But the danger isn’t over yet. Oil market researchers caution that the US-Iran agreement won’t immediately return traffic in the Strait of Hormuz to pre-war levels.
And the market is not signaling a swift return to pre-war prices either. The futures market doesn’t see Brent returning to $75 a barrel until 2028.
Still, Fed watchers say the fact that there is a US-Iran framework will allow Warsh and other Fed officials to avoid overreacting to another hot inflation report.
Read more here.
Powell is no longer chair — but he's still at the Fed
Jerome Powell’s term as chair of the Federal Reserve expired last month, yet he’s still working at the central bank and voting on interest rate decisions — even though Kevin Warsh was confirmed as the new chairman.
The reason Powell is able to stay on is because Fed leaders serve two concurrent terms: one as chair and the other as a governor on the central bank’s Board of Governors. Generally, outgoing chairs resign from serving as a board member — but Powell made the unusual decision to stay on until he’s confident that a criminal probe into the Fed’s expensive renovation is truly wrapped up.
“I had long planned to be retiring,” Powell said at his last meeting as chair, in April. “The things that have happened really in the last three months have, I think, left me no choice but to stay until I see them through.”
Jeanine Pirro, the US attorney for the District of Columbia, said in April she was dropping the investigation into Powell. But Powell said he was dismayed by Pirro’s insistence that “she would not hesitate to restart the investigation.”
As it stands, the Fed’s Office of Inspector General is investigating the renovation solely to determine if it was properly managed fiscally. It is not involved in any kind of criminal inquiry.
Inflation is the worst in three years. Warsh says that’s not the full story
Inflation hit its highest level in three years last month, according to fresh data released this week — but new Federal Reserve Chairman Kevin Warsh wants the central bank to focus on different measures.
“The measures I prefer are looking at things that are called trimmed averages,” he said during his confirmation hearing in April. “What I’m most interested in is what’s the underlying inflation rate, not what’s the one-time change in prices because of a change in geopolitics or a change in beef.”
Those “trimmed-mean averages” are alternative inflation gauges released by regional Fed banks that can give investors and policymakers a better sense of inflation’s breadth and direction.
The Federal Reserve Bank of Dallas produces one trimmed-mean gauge that shows annual inflation of 2.3% in April. A similar estimate from the Cleveland Fed puts annual inflation in May at 2.9%. In contrast, the May CPI came in at 4.2%; while the Producer Price Index, which measures inflation at the factory gate and was released Thursday, reached a more-than-three-year high of 6.5% in May. The PPI potentially foreshadows what may be in line for consumers.
Kevin Warsh should hike rates today, former Fed official says
Eric Rosengren, who served with Federal Reserve Chairman Kevin Warsh during the 2008 financial crisis, thinks the Fed should raise interest rates at today’s meeting to fight inflation.
Rosengren, the former president of the Federal Reserve Bank of Boston, told CNN in a phone interview that Warsh does not need to come to the rescue of a “very resilient” labor market with the rate cuts the White House has pushed for.
“The labor market isn’t really the issue. The debate is about the fact that inflation has been above target for five years,” said Rosengren, now a senior lecturer at MIT. “Inflation has been going up for the past year and a half.”
If he were still sitting on the Fed’s rate-setting committee, Rosengren said he would vote for a rate hike today despite the fact that the US-Iran agreement has caused oil prices to plunge.
Rosengren isn’t alone. A small majority of former Fed officials surveyed by Duke University visiting scholar Jon Hilsenrath say a rate hike would likely be appropriate this year. Only one former Fed official said the best course would be to cut rates.
Of course, there is very little chance of a rate hike at this meeting.
The market is pricing in a nearly 100% chance that the Fed keeps rates unchanged today, according to CME FedWatch.
Wall Street economists expect the Fed will hold rates steady for now, although some are penciling in a rate hike later this year or next.
What to know now
Here are the salient points ahead of today’s 2 p.m. ET decision from the Federal Reserve and the 2:30 p.m. press conference with Chairman Kevin Warsh:
- The Fed is widely expected to hold interest rates steady for the fourth consecutive meeting.
- The war with Iran and surge in oil prices has reignited inflation, while the labor market is now on firmer footing. Together, those developments strengthen the case for keeping rates at their current level or even raising them.
- While hiking rates would cool demand and help contain inflation, such a move could also weaken growth and employment. Fed policymakers are being cautious not to overreact, and are assessing the broader impact of inflation throughout the economy.
- President Donald Trump appointed Warsh with an explicit push toward lower interest rates. That may be hard for the new Fed chairman to achieve in the near term.
- This is Warsh’s first policy meeting at the helm of the central bank, and he will take questions from reporters for the first time on Wednesday.
Markets are quiet ahead of Fed decision and Warsh's remarks
It’s a relatively tame morning in financial markets while traders await the Federal Reserve’s decision on interest rates and Chairman Kevin Warsh’s comments in an afternoon press conference.
US stocks opened slightly higher: The Dow gained 22 points, or 0.04%. The S&P 500 rose 0.1% and the Nasdaq Composite rose 0.46%.
Oil prices were up less than 1%, pausing a four-day slide. Treasury yields fluctuated. Gold was flat. The US dollar index rose less than 0.1%.
Traders widely expect the Fed to hold interest rates steady for the fourth meeting in a row, as policymakers assess the economic implications of the war with Iran, including concerns about inflation, as well as signs of a rebounding labor market.
What’s less certain is how Warsh views the outlook for the economy, whether he’ll adjust Fed communications and what he’ll have to say this afternoon.
“Market fireworks, if they come, will arrive when Warsh addresses reporters during the post-decision press conference,” Karl Schamotta, chief market strategist at Corpay, said in a note.
“Much will depend on how he frames the outlook,” Schamotta said, including how Warsh discusses inflation and his goals at the helm of the central bank.
“The rate announcement is almost certainly a sideshow,” Nigel Green, CEO at deVere Group, said in a note.
“A hold is already priced in,” Green said. “Investors have moved beyond the question of what happens today. What they want to know is what Kevin Warsh’s Federal Reserve is going to look like.”
Stock futures are mixed ahead of Fed decision
US stock futures were little changed Wednesday morning ahead of the Federal Reserve’s decision on interest rates, set to be announced at 2 p.m. ET.
Dow futures fell 46 points, or 0.1%. S&P 500 futures rose 0.1%. Futures tied to the Nasdaq 100 gained 0.6%.
The Dow is coming off back-to-back days of record highs. The blue-chip index closed at 52,000 points for the first time ever on Tuesday, bringing its gains this year to more than 8%.
The S&P 500 and tech-heavy Nasdaq Composite are coming off a day in the red. The S&P and Nasdaq are 1.3% and 2.7% away from hitting record highs, respectively.
Artificial intelligence has been the market’s core focus, with SpaceX’s blockbuster initial public offering captivating traders’ attention. SpaceX shares (SPCX) were set to open higher Wednesday.
Now Wall Street is turning its attention to Kevin Warsh’s first meeting as Federal Reserve Chairman.
Retail sales beat expectations, growing for the fourth consecutive month
Americans are still opening their wallets, despite rising inflation and low consumer sentiment, in a positive sign for the economy.
Retail sales rose 0.9% in May from the prior month, the Commerce Department said Wednesday, the fourth consecutive monthly increase and well above the 0.5% gain economists predicted in a poll by data firm FactSet. The figures are adjusted for seasonal swings but not inflation.
Retail spending was up across nearly every category last month, rising the most at gasoline stations by 3.4%, mostly reflecting the higher gas prices of last month. But sales were still up a solid 0.7% in May when excluding those purchases. Online sales rose 1.5% last month, while sales were down 0.5% at electronics retailers and declined 0.3% at department stores.
Wednesday’s report bodes well for economic growth in the current quarter that stretches from April through June. Consumer spending accounts for about two-thirds of the US economy, and there haven’t been any signs of consumers cutting back. That’s despite higher inflation taking a bite out of people’s paychecks, resulting in declining wages when adjusting for price increases. Consumer sentiment has also at historic lows due to higher gas prices, though sentiment hasn’t been a good predictor of future spending in recent years.
Kevin Warsh in a nutshell
This month’s monetary policy meeting marks the first of Chairman Kevin Warsh’s four-year term. He’s taking over from Chair Jerome Powell, who led the Fed for eight years.
Here’s what you need to know about Warsh:
- He was appointed to the Fed’s Board of Governors in 2006 by then-President George Bush, serving in the position during the height of the Great Recession.
- He took on a special role as chief liaison to Wall Street. In that role, he helped coordinate the sale of Bear Stearns to JPMorgan Chase.
- Warsh resigned from the Fed in 2011 after publicly voicing his opposition to the central bank’s plan to buy $600 billion worth of bonds to inject more money into the economy.
- Before joining the Fed, he was an investment banker at Morgan Stanley.
- Warsh is married to Jane Lauder, an heir to Estée Lauder and a senior executive at the company.
Where interest rates stand
New chairman, same decision? The Federal Reserve is expected to announce on Wednesday that, for the fourth-straight meeting, it has voted not to change the current level of its benchmark interest rate.
Here's what Wall Street is expecting to hear from the Fed today
Wall Street expects the Federal Reserve to announce it held interest rates steady for the fourth meeting in a row.
The war with Iran and surge in oil prices has ignited inflation while the labor market is on better footing than in 2025, boosting arguments to keep rates steady, or even hike them.
Traders will be attuned to Kevin Warsh’s expected comments in an afternoon press conference. Here’s what economists are saying ahead of the rate decision and remarks from Warsh:
- “It is highly likely that the committee will formally drop its dovish/cutting bias, a development that was foreshadowed in the last meeting’s communications.” – David Doyle, head of economics at Macquarie Group.
- “The Fed remains on hold for now, taking a wait-and-see stance towards oil-induced inflation and recent labor market resilience.” – Mike Skordeles, head of US economics at Truist.
- “Questions could come up in the press conference about Warsh’s past criticisms of the Fed on themes including communications practices, balance sheet policy and financial regulation.” – David Mericle, chief US economist at Goldman Sachs. “Our best guess is still that any changes to the first two will be limited, but this week’s meeting should provide a better sense of Warsh’s priorities and current thinking.”
