Warsh Begins Fed Tenure with Rate Hold Despite Trump's Calls for Cut

The Federal Open Market Committee (FOMC), the group responsible for setting US interest rates, voted to keep its benchmark rate in a range of 3.5% to 3.75%, in line with market expectations. The decision was unanimous, with all 12 voting members supporting keeping rates unchanged. 

In its policy statement, the Fed said economic activity was expanding at a solid pace despite "elevated uncertainty" tied in part to the conflict in the Middle East. 

Alongside the decision, officials released updated forecasts for economic growth, inflation, unemployment and interest rates, indicating that price pressures are likely to remain more persistent than previously expected. The FOMC raised its 2026 inflation forecast to 3.6% from 2.7% in March.

"Inflation remains elevated relative to the Committee's 2 percent goal, in part reflecting supply shocks that have driven price increases in certain sectors, including energy," the statement reads. 

Meanwhile, the median projection for the federal funds rate rose to 3.8% for 2026, up from 3.4% in March, while forecasts for 2027 and 2028 increased to 3.6% from 3.1%. The Fed's decision comes as inflation remains well above its 2% target. US consumer prices rose 4.2% year-on-year in May, the highest reading in three years, fuelled in part by the US-Iran war and higher energy costs. 

The committee's updated statement also removed language that had been viewed as supportive of future rate cuts. 

Era of Warsh

The decision marked Warsh's first FOMC meeting as chair after being picked by President Donald Trump to succeed Powell.

His appointment came after months of public disagreements between Trump and Powell over interest rates. Trump repeatedly argued that the Fed should lower borrowing costs faster, while Powell maintained that policy decisions should be guided by economic data and geopolitical circumstances. 

Moreover, the backdrop has changed since Warsh was selected. Earlier this year, many investors expected the Fed to keep cutting rates after lowering them three times in late 2025. But inflation continues to persist – extending a stretch of more than five years above the Fed target level – leading policymakers to take a more cautious approach.

Specifically, policymakers have been pushing back on easing rates as the conflict between the US and Iran, which erupted earlier this year, wages on. The situation has also led to an extended oil-price shock, triggered by the closure of the Strait of Hormuz. 

Warsh previously served as a Federal Reserve governor from 2006 to 2011 and has argued that the central bank should give markets fewer hints about where interest rates are headed.

Market reactions

Crypto markets were little changed following the Fed's decision and the release of its updated projections.

Bitcoin (BTC) traded at around $65,360 shortly after the announcement, down about 1% over the previous 24 hours, while Ether (ETH) changed hands near $1,764, down 2%.

The broader cryptocurrency market capitalization stood at approximately $2.33tn, down about 0.7% on the day, according to CoinGecko data.