Decision-Day Guide: Warsh faces first big test as Fed Chair

Federal Reserve policymakers are expected to hold interest rates steady on Wednesday, posing an early test for new chairman Kevin Warsh as rising inflation erodes households’ purchasing power and President Donald Trump continues to press for lower borrowing costs.

In his first meeting leading the US central bank, Warsh is presiding over a Federal Open Market Committee where several participants have grown increasingly worried about stubborn inflation. A jump in energy prices after the outbreak of the US war in Iran only amplified those concerns. Several officials have now outlined scenarios they believe could warrant rate hikes and want to eliminate language in their post-meeting statement suggesting their next move is likely to be a cut.

That tweak in wording could become a reality at this week’s gathering, pushing Warsh into a delicate balancing act. Prior to his nomination for Fed chief, Warsh appeared in line with Trump’s calls for the Fed to lower rates. Now, the new chairman will have to contend with an inflation backdrop — and his colleagues’ views — that has made it more difficult to deliver what the president wants. Investors see more than an 80% chance the Fed raises rates by December, according to pricing in federal funds futures.

Fed officials will release their post-meeting statement at 2 p.m. Wednesday in Washington, with Warsh’s first press conference as chairman to follow 30 minutes later.

New Projections

Investors will be listening closely for how strongly Warsh expresses support for the central bank’s commitment to returning inflation to the Fed’s 2% goal. Reporters will also likely press Warsh on how news of an interim peace deal between the US and Iran affects his outlook for inflation and the broader US economy.

“If he doesn’t retain the confidence of the bond market, that would have a sort of immediate negative effect in terms of potentially higher risk premium being embedded in interest rates, which would be bad for the overall economy,” said Michael Feroli, chief US economist at JPMorgan Chase & Co.

Policymakers are also expected to release fresh quarterly economic projections and an updated “dot plot” — the chart that shows where policymakers see interest rates heading — following this week’s meeting. Economists surveyed by Bloomberg News expect officials to project significantly higher inflation, and to push back expectations for rate cuts into 2027. Policymakers had previously projected one cut in 2026 and one in 2027.

Given Warsh’s public criticism of forward guidance — or the practice of signaling the policy path to investors — Fed watchers will scrutinize the number of projections in the dot plot to see if Warsh participated.

Regime Change

Warsh will also likely be pushed to offer details on the “regime change” he’s promised to bring to the Fed. Warsh has signaled he’d look to shake up the central bank’s communications strategy, reduce the size of its balance sheet and re-examine its inflation models. Many of those changes would require support, if not a vote, from his FOMC colleagues. Those same policymakers will likely also be listening to the press conference to assess whether the chairman represents their views on the economy and potential institutional changes.

Fed watchers will also try to gauge how Warsh intends to manage his relationship with Trump, who has consistently called for lower rates and applied immense political pressure on the central bank. Warsh’s critics have argued he’ll be insufficiently independent from the White House, but he has rejected those concerns.

Robert Tetlow, a former senior policy adviser at the Fed, said he’ll be watching to see how much of Warsh’s views remain from his time as a fellow at a conservative think tank, the Hoover Institution, and his earlier tenure as Fed governor, when he became known as an aggressive inflation fighter.

“He might lay down a few markers,” Tetlow said. “The White House Warsh is the guy who’s going to find a reason to lower interest rates regardless of what economic conditions are. The Hoover Warsh is an inflation hawk.”