Federal Reserve holds rates steady as Kevin Warsh chairs his first meeting - and a rate hike is looking more likely than a cut this year

The new chair of the Federal Reserve, Kevin Warsh, presided over his first two-day Fed policy meeting yesterday and today.

As expected, the nation’s central bank left its key interest rate unchanged at between 3.50 percent and 3.75 percent - and analysts were taken aback by a growing cohort of Fed officials who feel rate hike might be needed this year.

Warsh succeeded former chair Jerome Powell last month, and now he leads the Fed at a very challenging time for the institution and the entire US economy, with inflation at three-year highs and the job market softening.

Despite President Donald Trump’s frequent demands to immediately cut interest rates, Warsh has promised that under his leadership the Fed will remain ‘strictly independent.’

The meeting may not have delivered any headline policy changes, but it did offer the first real signal of how Warsh plans to reset expectations about how the Fed communicates and sets policy.

First and foremost, the post-meeting statement was almost entirely revised - and notably shortened to a curt six sentences.

In addition, the Fed acknowledged the chaos in the Middle East. Thanks to the war and the energy price shock, the narrative has shifted from ‘how many rate cuts this year?’ to ‘how many rate hikes are on the table?’

‘That’s a big swing, and it puts Warsh in a difficult spot: He can acknowledge the recent pullback in oil prices and sound patient, but he can’t afford to look complacent if broader inflation pressures are moving the wrong way,’ said eToro investment analyst Bret Kenwell.

A growing cohort of Fed officials indicated at least one rate hike would be needed this year - compare that to zero officials calliung for a hike in March. 

Another group indicated they thought the Fed could hold steady into next year - and only one projected a cut this year, down from 12 in March. 

After years of chasing after the top job at the Fed, Warsh faces an impossible mission: Surging inflation suggests he needs to hike interest rates but President Donald Trump is already pressuring him to cut rates.

On the very day of Warsh’s confirmation hearings before Congress in May, CNBC asked Trump if he would be disappointed if he didn’t immediately cut rates. Trump responded: ‘I would. We should have the lowest interest rate in the world.’

Remember, central banks fight inflation's rapidly rising prices by hiking interest rates, while cutting rates makes inflation much, much worse.

'The Fed is stuck between surging inflation, which argues for rate hikes, and a soft job market, which argues for cuts, thus no change,' wrote Mark Zandi, chief economist at Moody's Analytics.

Wall Street analysts and political experts agree that Trump and Warsh are not a marriage made in heaven.

One told the Daily Mail that it's more likely that Warsh's Fed will have to raise rates in the next six months than cut them, teeing up a major confrontation with the White House.

‘The relationship between Warsh and Trump reminds me of one of those weddings where you just know it’s doomed from the very beginning,’ Deon Strickland, a professor of finance at Wake Forest University, told the Daily Mail.