The Federal Reserve is widely anticipated to maintain its benchmark interest rate at 3.50%-3.75% at the conclusion of Kevin Warsh's inaugural meeting as Fed Chair. This decision comes despite recent data showing strong U.S. hiring, a 4.3% unemployment rate, and inflation significantly exceeding the central bank's 2% target, reaching 4.2% since the Iran war began on February 28. Analysts predict the Fed will likely remove language from its policy statement that indicated future rate decreases, suggesting a potential shift towards keeping rates steady or even increasing them if inflation persists.
Warsh, who succeeded Jerome Powell last month, will hold a press conference 30 minutes after the 2 p.m. EDT (1800 GMT) announcement. The updated quarterly projections are expected to reveal that Fed officials no longer foresee rate cuts this year. Instead, they anticipate rates remaining stable within the current range, coupled with higher inflation forecasts and possibly a lower year-end unemployment rate. Some officials may even project a rate increase in their individual forecasts.
The recent peace deal hopes and the reopening of the Strait of Hormuz have led to plunging global oil prices, moving towards pre-conflict levels. However, the Fed must assess the lingering inflationary pressures from previous energy cost surges. While Goldman Sachs chief U.S. economist David Mericle believes the current impact on inflation resembles a typical pass-through from oil shocks and won't necessitate immediate rate hikes, rate cuts are generally not expected until mid-2027 at the earliest, given that headline inflation is projected to exceed 4% in coming months and stay above 3% through 2026.
President Trump has previously called for the Fed to cut interest rates to stimulate economic growth, though he recently expressed a desire for Warsh to make independent decisions. Jerome Powell, Warsh's predecessor, continues to serve on the Fed's board of governors until January 2028, opting to stay even after his term as chair ended, which prevented the Trump administration from filling an additional board seat. Powell is expected to vote on Wednesday's rate decision.
