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

In his first policy review as Chairman, Kevin Warsh-led Federal Open Market Committee (FOMC) has decided to maintain the federal funds rate in the 3.5% to 3.75% range. While the pause aligns with market expectations, the central bank’s updated projections signal a much more hawkish stance regarding future inflation and interest rate trajectories.

A Unanimous Decision Amidst Economic Uncertainty

The FOMC's decision to keep interest rates unchanged received unanimous support from policymakers, marking the first time in a year that such a consensus was reached. In his debut policy review, Chairman Warsh noted that while economic activity is expanding at a solid pace, "elevated uncertainty"—partly driven by geopolitical tensions in the Middle East—remains a factor.

Despite these uncertainties, 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 showing minimal movement. However, the central bank emphasized that inflation remains stubbornly high relative to its 2% target, driven in part by supply shocks in sectors like energy.

Shifting Projections: Rate Hikes and Inflation Forecasts

While the immediate rate was held steady, the Summary of Economic Projections (SEP) revealed a lean toward tighter monetary policy. Of the 19 officials participating in the projections, 18 indicated they expect at least one interest rate increase before the end of the year. This shift comes as the Fed also removed its previous forward guidance on the future path of interest rates, granting the committee more flexibility.

The Fed has significantly revised its inflation outlook upward. The Personal Consumption Expenditures (PCE) price index is now projected to reach 3.6% by the end of 2026, a sharp climb from the 2.7% estimate issued in March. Crucially, the central bank does not anticipate inflation returning to its 2% target before 2028, suggesting that price pressures will persist for the foreseeable future.

The Warsh Era: A New Leadership Style

L'ascesa di Kevin Warsh alla presidenza della Fed, a seguito della sua nomina da parte del Presidente Donald Trump, ha introdotto una nuova dinamica nella politica monetaria statunitense. A differenza del suo predecessore Jerome Powell, noto per uno stile di comunicazione accessibile e diretto, Warsh sembra orientarsi verso un approccio più "misurato ed enigmatico", che ricorda quello dell'ex presidente Alan Greenspan.

Gli osservatori del settore si aspettano che Warsh privilegi meno discorsi pubblici e deliberazioni interne più approfondite. Questo cambio di leadership avviene in un momento delicato, mentre la Fed cerca di bilanciare la pressione per tassi più bassi — spesso sostenuta dal Presidente Trump — con la realtà dell'inflazione, che recentemente è salita al massimo degli ultimi tre anni, toccando il 4,2% a causa dell'aumento dei costi del carburante.

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