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.
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.”
