What we covered here
• Decision day The Federal Reserve said Wednesday it is keeping its interest rate unchanged for the fourth-straight time but signaled that a rate hike is ahead.
• New sheriff in town Trump appointee Kevin Warsh led his first policy meeting as Fed chairman and quickly made his mark, revealing in a news conference a list of changes he plans to make.
• 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 many of Warsh’s colleagues signaled in their economic outlook today that they anticipate hiking rates at some point this year.
Our live coverage of Kevin Warsh’s historic first policy meeting as Federal Reserve chairman has ended. Read here for more analysis on his plans for the US central bank.
Here's everything we know so far about Warsh's plans for the Fed
In testimony to Congress and at his swearing-in ceremony, Federal Reserve Chairman Kevin Warsh promised “regime change.”
On Wednesday, after leading his first policy meeting, he made it clear he is serious:
- He announced five task forces in “areas that are central to the broad conduct of monetary policy.”
- He broke with tradition and did not submit a “dot” for the Fed’s famous “dot plot,” aka economic projections for the short and longer term.
- The Fed’s policy statement got a makeover and is now much a truncated version Warsh described as “curt.”
- His news conference was shorter than those with his predecessor.
- He hinted at fewer news conferences, nothing that “when you have one, you want to make sure you have something important to say.”
- He said he and his colleagues decided not to give “forward guidance,” or any hint where interest rates may be heading.
What housing experts are saying about Warsh’s first Fed meeting
The Federal Reserve doesn’t set mortgage rates, but its policies help determine the cost of borrowing throughout the economy. That means decisions made by new Federal Reserve Chairman Kevin Warsh could ripple through the housing market, affecting mortgage rates, home affordability and new home construction. Here’s what housing industry experts have to say:
- Chen Zhao, head of economics research at Redfin: “It’s clear that we’re in a new era and it’s going to take a while for markets to figure out how to react to today’s Fed meeting. But one thing is certain: the committee as a whole is taking inflation very seriously, which means mortgage rates are unlikely to retreat much in the near future.”
- Bill Banfield, chief business officer at Rocket Mortgage: “Home sales are responding more right now to labor market strength than rate moves. If the labor market remains healthy, buyers will continue to enter the market regardless of whether the next move from the Fed is a cut, pause or even a hike.”
- Vishal Garg, CEO of AI mortgage platform Better: “Right now this is about what the Fed says, not just what it does. The Fed doesn’t set mortgage rates — but these mortgage rates track long-term Treasury yields, which move based on investor expectations for inflation, growth, and the Fed’s next step.”
Dow falls 500 points, short-term yields jump as traders raise bets for rate hikes
Stocks, short-term bonds and gold all fell after the Federal Reserve held interest rates steady and nine Fed members indicated a rate hike by year-end is warranted.
The Dow fell 507 points, or 0.98%. The S&P 500 fell 1.21%, and the tech-heavy Nasdaq Composite fell 1.34%. Stocks fluctuated during Fed Chairman Kevin Warsh’s remarks before extending losses in the final hour of trading.
Two-year Treasury yields jumped a whopping 16 basis points to 4.21%, hitting their highest level in over a year. Yields rise when bond prices fall.
The US dollar index rose about 1% and was set for its best day in almost a year, reflecting expectations for higher-for-longer rates. Gold, which tends to do worse when rates are higher and the dollar is stronger, fell more than 2%.
The Fed published a truncated statement, which mentioned that inflation remains “elevated” partly because of energy “supply shocks.”
Warsh opted not to submit a forecast for the central bank’s so-called dot plot. But nine members of the Fed signaled a rate hike is needed by year-end, according to their projections.
Traders are now pricing in a 49% chance of a rate hike in September, up from a 27% chance yesterday, according to CME FedWatch.
“Markets were holding out hope that Chair Warsh would throw them some kernels of real dovishness that they obviously felt they didn’t get,” Kristina Hooper, chief market strategist at Man Group, told CNN.
Warsh: "We've missed for five years. And we're going to fix that"
The most noticeable change in Federal Reserve Chairman Kevin Warsh’s oversight of the central bank, compared to his predecessor, Jerome Powell, is his determination to reform the institution.
Warsh routinely answered reporters’ questions by referring to five task forces he is setting up to address those reforms, mentioning the groups 30 times in his prepared statement and Q&A session.
He was unapologetic about the need for the Fed to get more up-to-date data and tools to address its dual mandate balancing employment and inflation. Warsh was most emphatic when discussing inflation, which he said had been too high in the post-pandemic era.
“The Fed will deliver price stability,” Warsh said. “The commitment to deliver is strong, unanimous, and unambiguous. And that’s an important message we’ve missed for five years. And we’re going to fix that.”
But as determined as Warsh said the Fed was to modernizing and fixing the economy’s problems, Warsh was noticeably less willing to provide detailed answers about the Fed’s decision-making process or thoughts on broader economic topics than Powell. Warsh often referred back to the Fed’s brief statement about the economy rather than expounding upon it.
In an answer that Warsh acknowledged was purposefully “curt,” he said: “I’ve got nothing more to say than the statement itself.” In another, he noted, “I can’t do much better than the committee just did. So let me restate it.”
Catch up on our Fed live analysis chat
CNN experts debated the Fed decision and Kevin Warsh’s first press conference as it happened. Read their conversation here.
"We have a very good guy over there now": Trump accepts his new Fed chairman's decision not to lower rates
At several prior meetings when the Federal Reserve didn’t lower rates, President Donald Trump was quick to lash out at then-Chair Jerome Powell.
But that wasn’t the case today for new Fed Chairman Kevin Warsh, whose first monetary policy meeting resulted in the central bank leaving rates unchanged.
Higher interest rates “keeps the country down,” Trump told reporters in Paris before departing for a dinner in Versailles.
“We have a very good guy over there now,” he said of Warsh, whom he selected in January to run the central bank. “So I’m guided by what he wants.”
Stocks hit session lows heading into closing bell
Stocks dipped lower in the last hour of trading, extending losses after Federal Reserve Chairman Kevin Warsh concluded remarks.
The Dow fell 410 points, or 0.8%. The S&P 500 fell 1.06%, and the tech-heavy Nasdaq Composite fell 1%.
Two-year Treasury yields, which track expectations for Fed interest rates, jumped 14 basis points and traded near their highest level in over a year.
Traders are digesting a Fed meeting and outlook that signals interest rates will remain on hold, or could even be raised, to combat resurgent inflation.
“Markets were prepared for higher rates, but the Fed’s projections suggest policymakers may be willing to stay more hawkish than investors expected,” Bret Kenwell, US investment analyst at eToro, said in a note.
The Fed's new era begins. Here's what it means for your money
The Federal Reserve may have a new chairman in Kevin Warsh, but it still has to balance its old dual mandate: Lower rates to boost the economy when the labor market is struggling, or raise rates to cool economic activity when inflation is considered too high.
Well, the job market seems to be doing better than expected. But inflation is now at its highest level (4.2%) in three years — and double the Fed’s oft-stated target of 2%.
Nevertheless, the Federal Reserve on Wednesday opted not to raise rates. But nine Fed officials penciled in at least one rate hike this year.
Whether that actually happens remains to be seen. But in the meantime, you can take steps now to improve what you earn on your savings and pay on your debts.
Warsh hints at fewer press conferences
During Jerome Powell’s eight-year tenure as Federal Reserve chair, at the conclusion of every monetary policy meeting he held a press conference with reporters.
New Fed Chairman Kevin Warsh held a news conference with reporters today after his first meeting since returning to the central bank, but that may not be the case at every meeting going forward.
“My mentor’s mantra was press conferences are useful; but when you have one, you want to make sure you have something important to say,” Warsh told reporters.
Warsh said Fed officials had changes today that merited holding a presser. “I expect more changes to come, and some of those might well be worthy of a press conference,” he said.
Warsh says the Fed shouldn't have to make a "cruel choice" between inflation and jobs
The Federal Reserve’s policy is directed by Congress to promote two key goals: maximum employment and stable prices.
Traditionally, economists have viewed the Fed’s dual mandate as a balancing act, with one goal sometimes coming at the expense of the other. If the Fed cuts rates to help spur employment, it risks igniting inflation. On the flip side, if the Fed keeps rates too high to fight inflation, it risks pushing more people out of work.
On Wednesday, however, Kevin Warsh, the Fed’s new chairman, rejected that premise.
“I don’t believe that we have a cruel choice. I don’t share the view that was expressed a few generations ago that the Federal Reserve chairman show up at the podium and say you’ve got to choose, and you’re going to have to decide whether you’re willing to tolerate higher inflation to put more people at work,” he said.
“What I believe is if we do our job, we can make strong growth, low prices and strong employment mutually compatible,” he added.
Warsh met with Fed inspector general and discussed building renovation
Federal Reserve Chairman Kevin Warsh said he met with the central bank’s inspector general, who is preparing an independent report regarding the Fed’s multibillion-dollar renovation.
Warsh shared this in response to a reporter’s question gauging whether he’s considering any changes to the construction project that President Donald Trump has voiced his opposition to. The Justice Department also led a criminal investigation into former Fed Chair Jerome Powell over it. The investigation has since been wrapped and was referred to the inspector general for a non-criminal inquiry.
Warsh didn’t share any specific changes he’d make to the ongoing renovation, saying he’ll be interested in reading the report due later this summer to see if there’s anything the central bank could do to “be good stewards of taxpayer money and make sure that we’re delivering on the promises that we made.”
The Fed is a self-funded organization, however. And the renovation is financed through its own earnings, not taxpayer dollars.
Stocks pare losses as Warsh delivers remarks
Stocks bounced around as traders digested Fed Chairman Kevin Warsh’s comments.
The Dow and Nasdaq turned higher and were up less than 0.1%, erasing earlier losses. The S&P 500 was down 0.1%, paring losses after falling as much as 0.88% shortly after the Fed’s rate decision was announced.
The major indexes pared losses but remained lower compared to before the Fed announced its decision on rates.
Warsh discussed the Fed’s commitment to achieving price stability. The new Fed chairman also outlined proposed task forces to review topics including Fed communication strategies, the central bank’s balance sheet and economic data.
Short-term Treasury yields jumped higher as traders adjusted expectations for potential rate hikes later this year. The Fed’s so-called dot plot showed nine members think a rate hike is warranted before year-end. Gold prices, which tend to do worse when rates are higher, fell 0.8%, erasing earlier gains.
“The bar for a rate hike looks lower after today’s meeting, and it might not take much in the way of bad news on inflation, or continued robust growth, to push the Fed towards tightening as it looks to fine tune policy,” James McCann, senior economist at Edward Jones, said in a note.
Warsh trimmed Fed statement to give just "the facts"
Federal Reserve Chairman Kevin Warsh said Wednesday the central bank’s monetary policy statement was significantly shortened to reflect only facts.
“That statement just gives you the facts as best we can judge it,” Warsh told reporters at his first post-monetary policy meeting press conference.
He also acknowledged that so-called “forward guidance,” meaning language that hints at future actions, was purposefully omitted.
Warsh announces five "independent task forces"
At his first press conference as Federal Reserve Chairman, Kevin Warsh announced five new independent task forces on aspects of the central bank that Warsh said are “worthy of a fresh look.”
For the initiative, Warsh said he was “enlisting some of the very best minds, both inside and outside the economics profession.”
The five task forces will focus on:
- Fed communications, including reconsidering the Fed’s quarterly Summary of Economic Projections, which shows where individual policymakers at the Fed expect short-term interest rates.
- The Fed’s balance sheet
- The central bank’s “use and reliance on existing data sources”
- “Productivity and jobs in an era of transformation”
- The Fed’s inflation frameworks.
The leaders of these task forces will have a “straightforward charge: start with first principles, ask hard questions, examine current practice, consider alternatives and ultimately propose next steps for policy-maker consideration,” Warsh said.
Warsh chose not to provide any projections today on the economic outlook
Once every quarter, Federal Reserve officials submit projections on how they believe the economy will evolve over the current year and years ahead. They also forecast where they believe rates should be.
Generally 19 Fed officials — 12 from the Fed’s Board of Governors and seven regional bank presidents — make individual submissions. But at this month’s meeting only 18 responses were recorded. Fed Chairman Kevin Warsh confirmed he was the missing vote at his first post-monetary policy meeting on Wednesday.
“It’s been the practice of this committee for participants to submit these projections, and I have encouraged my colleagues to continue to do so,” he said. “I, however, have refrained from offering any projections of my own, consistent with my long-held views on the SEP, at least as currently structured.” (SEP refers to the Summary of Economic Projections.)
Powell had a signature look: the purple tie. Warsh went in a different direction
Before Kevin Warsh even uttered a word at his first press conference as Federal Reserve chairman, some who closely watch the central bank had their eyes fixed on something else entirely: the color of his tie.
Warsh’s predecessor, Jerome Powell, tended to favor purple neckwear at Fed press conferences and other public appearances.
The choice was intentional. Last year, as President Donald Trump repeatedly attacked him for not cutting interest rates more aggressively, Powell said his preference for purple ties was meant to send a message: the Fed is an apolitical, nonpartisan institution.
Wearing a blue or red tie, which are colors often associated with the Democratic and Republican parties, “felt a little awkward,” Powell said last April.
But on Wednesday, Warsh, who was nominated by Trump earlier this year, went in a distinctly different direction from Powell, opting instead to wear a dark blue tie.
The Fed thinks gas prices will fall but inflation will linger
In their economic projections, the Fed committee predicted something unusual: they expect that next year, inflation will fall – but when you strip out volatile food and energy prices, the inflation number will actually be higher.
That hasn’t happened in quite some time. Gas, in particular, has been outpacing inflation in recent months because of the war in Iran. So-called core inflation, which ignores energy prices, has been lower as a result.
The Fed looks particularly hard at core inflation as part of its suite of data it examines to set its rate policy. The Fed typically wants that number at 2%.
Next year, the Fed thinks core inflation will be at 2.5% – higher than the overall inflation rate of 2.3%.
That’s because the Fed is predicting gas prices will fall next year, but the effects that high energy prices will have on other sectors will linger, keeping prices on goods rising faster for longer.
Trump has long been pushing for cuts. Warsh didn't deliver in his first meeting
President Donald Trump long sought to pressure former Federal Reserve Chair Jerome Powell to lower interest rates. It didn’t work. But Trump promised last year that the next leader of the central bank would be “someone who believes in lower interest rates, by a lot.”
Trump didn’t get a rate cut at this meeting, though. In fact, Chairman Kevin Warsh joined his 11 other colleagues in voting to hold rates steady.
Warsh quickly makes presence felt with a dramatic change in Fed communications
The Federal Reserve issued a 132-word, simple and declarative statement on Wednesday, following new Fed Chairman Kevin Warsh’s stated desire for the Fed to talk less (we’ll see about the big stick).
In the prior meeting – the last under former Fed Chair Jerome Powell – the Fed issued a 314-word statement.
Today’s statement says simply that officials voted unanimously (as is the custom), the Fed maintained its target rate, and offered four short sentences about the economy. The Fed said the US economy is growing despite uncertainty because of the war in Iran, productivity and investment were growing strong, the job market is keeping up with population growth and inflation remains high because of energy and other supply shocks.
“The committee will deliver price stability,” the statement abruptly ends.
Warsh said overcommunication from the Fed has led to misinterpretation, particularly around prognostications and projections, which he has sought to dial back.
Much of what today’s statement eliminates was language about the Fed’s strong commitment to balancing unemployment and inflation and what kinds of information it will look at to make its policy determinations – language that economists typically skip over when trying to determine what the Fed is trying to communicated.
