US Fed Holds Rates Steady Under Kevin Warsh but Signals Year-End Hike

In his first policy review since taking the helm from Jerome Powell, Federal Reserve Chairman Kevin Warsh led the FOMC to maintain interest rates within the 3.5% to 3.75% range. While the decision to pause provides immediate stability, the central bank's revised outlook suggests that the era of easy money is far from over.

A Unanimous Decision Amid Economic Uncertainty

The Federal Open Market Committee (FOMC) reached a unanimous decision to keep the federal funds rate unchanged, marking the first time in a year that policymakers showed such total consensus. The committee noted that while economic activity is expanding at a "solid pace," significant uncertainties persist, particularly due to geopolitical tensions in the Middle East.

Despite these headwinds, the Fed highlighted strong productivity growth and robust capital investment. The labor market also remains resilient, with job gains keeping pace with the workforce and the unemployment rate remaining relatively stable. However, the central bank remains laser-focused on its dual mandate, emphasizing that price stability remains a primary objective.

Inflation Projections Shift Higher

The most significant takeaway from the meeting was the upward revision of inflation forecasts. The Fed acknowledged that inflation remains stubbornly elevated relative to its 2% target, driven largely by supply shocks in sectors like energy. Recent data shows inflation has climbed to a three-year high of 4.2%, fueled by rising fuel costs.

In a sobering outlook, the Fed's Summary of Economic Projections indicates that inflation is not expected to return to the 2% target before 2028. Specifically, the forecast for the Personal Consumption Expenditures (PCE) price index has been hiked to 3.6% by the end of 2026, a sharp increase from the 2.7% estimate provided in March.

Potential Rate Hikes and the Warsh Era

While the immediate rate was held steady, the path forward appears hawkish. Of the 19 officials participating in the economic projections, 18 signaled that at least one rate increase is likely before the end of the year. This hawkish tilt comes as the Fed removed its previous forward guidance regarding the future path of interest rates, granting the committee more flexibility.

با آغاز به کار کوین وارش در جایگاه خود — که توسط پرزیدنت دونالد ترامپ نامزد شده است — سرمایه‌گذاران با دقت سبک رهبری او را زیر نظر دارند. برخلاف سلف او، جروم پاول، که به ارتباطات مستقیم شهرت داشت، انتظار می‌رود وارش رویکردی سنجیده‌تر و «معماگونه»، یادآورِ آلن گرین‌اسپن، رئیس سابق، اتخاذ کند. این تغییر جهت به سمت سخنرانی‌های عمومی کمتر و مشورت‌های داخلی بیشتر، ممکن است نشان‌دهنده فصلی جدید در نحوه انتقال تصمیمات فدرال رزرو به بازارهای جهانی باشد.

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