Fed Leans Toward Possible Rate Hike This Year, In Marked Shift On Inflation

Federal Reserve officials on Wednesday suggested an interest rate increase is on the table this year against a backdrop of rising inflation, previewing a potential move that would likely infuriate President Donald Trump.

But Trump's new Fed chair, Kevin Warsh, is keeping mum on whether he agrees.

In the economic forecasts that U.S. central bankers publish quarterly, roughly half of the rate-setting committee projected at least one rate hike in 2026, a shift from earlier this year when the anonymized predictions suggested the Fed was actually likely to cut borrowing costs this year.

But one of the 19 committee members — the new chair — didn't put forward a forecast, one of multiple moves that make clear that the Fed is now firmly in the Warsh era.

The central bank chief has argued that the Fed talks too much about where it thinks policy will go, sometimes confusing investors, and has criticized its publication of the so-called summary of economic projections.

His move to avoid participating in that practice is in line with his past comments, but it also has the benefit of helping him avoid a potential confrontation with Trump, who has made clear he expects Warsh to push for rate cuts.

“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,” Warsh said during his first press conference as chair. “I, however, have refrained from offering any projections of my own, consistent with my long-held views.”

The committee voted unanimously to keep rates within a range of 3.5 percent to 3.75 percent. Stocks fell and bond yields surged after the economic forecasts were released.

Trump weighed in briefly on the committee's decision, telling a group of reporters it was “alright” that the Fed had held rates steady.

Asked about the possibility that the central bank could raise rates, the president added: “It could happen. I mean, it's hard to believe. It just keeps the country down, you know, so it’s so unusual, but we have a very good guy over there now, so I’m guided by what he wants.”

In another striking move for an institution that is measured in its communications and slow to change, the Fed's post-meeting statement was dramatically shorter than usual. It said the economy is “expanding at a solid pace despite elevated uncertainty that owes, in part, to the conflict in the Middle East,” but gave no signal about where rates might head.

The document also includes a simple declarative statement underscoring the central bank's commitment to keeping inflation in check: “The Committee will deliver price stability.”

The statement also suggests that, for now, Warsh will not overhaul the Fed's framework governing its asset holdings, though he has long criticized the large size of the central bank's balance sheet.

Warsh announced that he is forming five task forces that will bring together people both inside and outside the central bank who will examine potential reforms to the institution. The subjects they will cover are communications; the Fed’s balance sheet policy; the use and reliance on existing data sources; “productivity and jobs in an era of transformation,” and one examining the drivers of inflation.

“These subjects are timely, consequential, and in my view worthy of a fresh look,” he said.