When President Donald Trump announced he “loved the inflation” on June 9, he gave new Federal Reserve Chair Kevin Warsh a hall pass on lowering interest rates — for now.

The official White House blessing is seen by Fed watchers as taking pressure off Warsh to fulfill Trump’s demands that the Federal Open Market Committee dramatically lower the benchmark Federal Funds Rate.

That’s because of the higher prices American consumers are paying at the grocery store, the gas pump and healthcare providers.

Bank of America Economist Ethan Harris said that the collective view of FOMC members has become “more hawkish” in the weeks running up to the June 16-17 meeting, Warsh’s first as Chair.

“The new Summary of Economic Projections will likely reflect that shift, with both higher inflation and a slightly higher funds path,’’ Harris said in a SubStack post.

“Consistent with his critique of “forward guidance,” I don’t expect Warsh to submit a “dot,” Harris said.  

Warsh’s scheduled press conference after the June 17 meeting will be closely studied to see how far his pledges of reforms, not only for interest-rate policy but for shrinking the Fed’s balance sheet and curbing communications, have seeped into effect.

Warsh is just one vote on the 12-member FOMC but is expected in his role to set the tone for policymakers to follow. 

Fed watchers are also waiting to see how many, if any, fellow FOMC members dissent from the deciding vote on interest rates or language in the post-meeting statement.

“The most important signal may not be what the Fed does, but what it stops saying,” Dennis Shen of the International School of Management in Germany told Bloomberg.

“The ‘easing bias’ that has lingered in recent policy statements now looks increasingly out of place against a backdrop of resilient labor markets and rising inflation,” Shen added.

How Fed interest rates affect your wallet

The funds rate sets the pace for the cost of borrowing money on everything from credit cards to student loans and even mortgages.

Rising price pressures, due in part to sticky inflation, lingering tariff costs and most recently the energy spikes of the Iran War, are causing economists and market analysts to change rate-policy forecasts from one-to-two rate cuts this year to none. 

The consensus varies from economists expecting the Fed to hold rates steady until mid-2027 to bond future traders predicting a rate hikeby December.

Fed’s mandate requires a tricky balance

The Fed’s dual mandate from Congress requires maximum employment and stable prices.

  • Lower interest rates support hiring but can fuel inflation. This risks fueling further inflation, potentially leading to an inflationary spiral.
  • Higher rates cool prices but can weaken the job market. This increases the cost of borrowing and further stifles economic activity.

The FOMC continued to hold the funds rate steady at 3.50% – 3.75% during its April 30 meeting.

This came after policymakers cut rates by 25 basis points at its last three meetings of 2025 to shore up the softening labor market. 

The cuts stopped after the majority of policymakers decided the risk from higher prices was outweighing signs that the jobs market was stabilizing.

Trump demands dramatic Fed interest-rate cuts

FRED Economic Data/TheStreet Trump’s comments on his new-found affinity for inflation came during a rambling Oval Office meeting with reporters hours after the May Consumer Price Index showed an annual hike of 4.2%.

  • First, the president has spent the entire duration of his second administration lambasting former Fed Chair Jerome Powell as a “nincompoop”  and a “moron” for not drastically lowering rates to 1% or less. 
  • Second, while campaigning for the Chair role, Warsh notably switched his formerly hawkish views of inflation displayed during his time as a Fed governor and started sounding very, very dovish. 
  • Third, the president said he would not nominate a Fed Chair candidate who didn’t agree with his outlook on monetary policy. 
  • Finally, while both Trump and Warsh have been mindful of the global criticism especially from the markets about the damage to Fed independence, both say they haven’t discussed interest-rate cuts with each other.

Why does it matter?  As I reported, Trump, in an oft-confrontational interview with NBC News’ “Meet the Press”, blasted the growing consensus from Main Street to Wall Street that the Federal Reserve will begin to raise rates later this year to offset risks to the inflation side of the Fed’s mandate. 

Trump said he wants Warsh “to do whatever he wants,” he also added that “There’s no reason to raise interest rates.” 

It’s not just energy shocks causing inflationary worries

The CME Group FedWatch Tool predicts a near 100% probability that the FOMC will hold rates steady at its first meeting under Warsh.

KPMG Chief Economist and Managing Director Diane Swonk said evidence of a persistent bout of service-sector inflation emerged prior to the conflict in the Middle East. 

“That has raised concerns among the Fed’s leadership that rates may now be too low to contain inflation,’’ Swonk said in a LinkedIn post. “Warsh will get a grace period, but the data for the Fed’s preferred inflation target, the PCE index, looks worrisome for May.”

Related: White House sends blunt message to Warsh as Fed rate fears rise

The May 2026 Personal Consumption Expenditure index, the Fed’s preferred inflation measure, will be released June 25. It will be closely watched to see if the April energy-driven spike in headline PCE of 3.8% year-over-year is moderating. 

Morgan Stanley and other analysts say the May print may be near peak inflation is moderating but Goldman Sachs and Barclays forecast elevated readings to persist into the second half of this year well above the Fed’s 2% target.

Warsh’s ‘regime change’ on inflation data raises eyebrows

In addition to curbing “forward guidance” from policymakers, Warsh’s promised “regime change” at the U.S. central bank includes changing the way the Fed measures inflation.

He advocates pivoting from the conventional inflation metrics and focusing on “trimmed averages” which excludes the tails or items with highest and the lowest price changes in a given month.

Such a move could cause a dent in the Fed’s credibility, noted economist Joseph G. Carson wrote in Haver Analytics.

If the Fed opts to alter its inflation target while inflation is significantly above the target, especially after modifying the framework to promote more inflation and persistently low official interest rates when inflation was below target, “it would set a bad precedent,’’ Carson said.

“Critics would argue that the new Fed Chair is adjusting the inflation target to squash calls for a rate hike, while opening up the possibility of an official rate cut later, which is what President Trump is seeking from his nominee,’’ he added.

Related: Inflation drives rate-cut debate at Warsh’s first Fed meeting