The US Federal Reserve held its first meeting with new Chair Kevin Warsh from Tuesday (June 16) to Wednesday (June 17) as a US-Iran peace deal is on the table and the US economy is in the midst of a three-year inflation high alongside a resilient labor market.
The central bank held the federal funds rate steady in the 3.5 to 3.75 percent range, as analysts had expected. The Fed’s “wait-and-see” approach to interest rates has continued under Warsh, who took office as Fed Chair on May 22.
The potential for rate cuts this year has become a non-starter due to the persistent threat of sticky inflation. In fact, CME Group’s (NASDAQ:CME) FedWatch tool shows about 30 percent of market participants believe a prospective rate hike could come as early as September and about 60 percent see interest rates higher by December.
Cutting rates is not an option as the unemployment rate stands at a highly stable 4.3 percent, signalling that the broader economy is not in any immediate distress.
While the inflation rate stands at 4.2 percent (more than double the central bank’s 2 percent target), given that the current state of inflation is being fed by rising energy prices related to the Middle East conflict, raising rates is not likely to address that issue.
The proposed US-Iran accord brokered by Pakistan is slated to be signed June 19 in Geneva, Switzerland to begin a 60-day negotiation over Iran’s nuclear ambitions.
In addition, the blockade of the Strait of Hormuz is supposed to be resolved within 30 days of signing of the accord. Oil prices have reacted to the potential peace deal by falling more than 10 percent to their lowest level in three months.
However, the ongoing war between Israel and Lebanon has the potential to throw a wrench in the negotiations as an end to that conflict continues to be a sticking point for Iran’s acceptance of peace terms with the Trump Administration. This means the markets and the Fed will likely not count out the potential for more flare ups spiking energy prices in the coming months, and instead will wait for hard economic data to show that structural inflation is actually easing.
The most recent round of data on the US economy supports the Fed’s decision to keep rates in a holding pattern.
On June 5, the Bureau of Labor Statistics released the nonfarm payrolls report which showed that the US economy picked up 172,000 jobs in May 2026, following an increase of 179,000 jobs in the previous month.
That’s attributed to gains across several sectors including leisure and hospitality, local government, and health care, while employment in the financial activities sector decreased.
There are other signs the labor market may be in what analysts are calling a “low hire-low fire” environment. Namely, nearly three-quarters of the job gains in May were just in the first two sectors mentioned above.
In addition, the number of people unemployed for 27 weeks or longer has risen by 524,000 over the past year, making long-term unemployed individuals 27.5 percent of the total jobless number.
Finally, wage growth for May came in at 3.4 percent year-over-year, down from 3.6 percent in April, and labor force participation for May stayed at 61.9 percent, its lowest level since late 2021.
May consumer price index (CPI) was released on June 10, showing annual inflation at a three year high of 4.2 percent, and a monthly increase of 0.5 percent. Core CPI, which excludes the food and energy categories, rose by 0.2 percent for the month, taking the 12 month core rate to 2.9 percent.
Producer price index (PPI) data, released on June 11, shows an increase of 1.1 percent for May. This was far above economists’ expectations of a 0.6 to 0.7 percent gain. Annual headline PPI rose to 6.5 percent, its highest year-on-year rate since late 2022.
Total retail sales for May was released on June 16, reporting an increase of 0.42 percent month-over-month and year-over-year core sales surged by 7.19 percent, accelerating from the 5.73 percent annual growth recorded in April. The stronger-than-expected retail report implies the US economy remains resilient.
Following the rate decision, the Fed board provided its members reasoning for leaving rates unchanged. Mainly, the central bank sees the economy as growing at a solid pace, supported by robust capital investment and productivity growth. Job gains have kept a steady pace, and the unemployment rate has remained relatively stable.
However, inflation remains elevated due to global energy supply shocks.
The decision was no surprise to analysts. “While the views of Kevin Warsh on monetary policy may be less restrictive than Powell’s, it is very unlikely that the direction would change — at least for now,” John Murillo, chief business officer at global fintech solutions provider B2BROKER, told the Investing News Network (INN) prior to the Fed announcement.
“Considering higher oil prices and rising inflation in the US, there is a strong chance the rate will be kept unchanged at the next meeting, since there is little room to ease policy right now,” he added.
“For that reason, the signals the Fed sends to the public will be far more important.”
Fed rate decision unanimous
The split between doves and hawks that began in late 2025 was finally laid to rest during its fourth rate decision of this year. With Warsh now at the helm, all the board members unanimously agreed to hold rates steady.
“I’m proud to report that members of the FOMC are unambiguous and unanimous,” said Warsh during the introduction to his first post-Fed meeting press conference. “This committee will deliver price stability.”
The meeting also included the Federal Open Market Committee’s (FOMC) quarterly Summary of Economic Projections (SEP). Notably, over the next four years, the FOMC is forecasting a slowdown in core inflation, with an unemployment rate around 4 percent. The SEP includes the dot plot, which reveals Fed officials’ long-term rate predictions. Half of the members see the potential for a small rate cut this year, while the other half anticipate at least one rate hike.
New Fed era under Warsh
Unlike previous rate announcements this year, the June statement does not include any mention of potential easing. Also missing are any projections from Warsh, who in the past has argued against these forecasts.
“I did not submit a dot for me,” Warsh said during the press conference. “It’s not helpful in the conduct of policy. I suspect by year end, as I mentioned in my opening statements, there’ll be a review about communication broadly, press conferences, dots, meetings and the like, transcripts, minutes. This will be part of that. I don’t want to prejudge the outcomes there, but I’m pretty open minded about what they could be.”
Also notable was the brevity of the Fed statement compared to those issued under Powell. Warsh said that in times past the Fed has been too forward looking, leading to misrepresentations of the FOMC’s intent.
In an interview with INN before the Fed meeting, David Nicholas, co-founder of XFunds, shared his belief that the central bank is entering a new era under Warsh. He sees Warsh instituting “a mindset that can balance growth of the economy without stifling it or being restrictive when it comes to where rates are at.”
Other changes at the Fed under Warsh will stem from what data is used to to formulate monetary decisions. During the press conference the chair advised investors not to rely solely on “old-fashioned survey methods” like the monthly jobs report, but to look at fresh real-time data, reported Business Insider.
“I think financial markets perform best when they react to incoming data,” Warsh said. “The more that markets are paying attention to what’s happening in the real economy — what’s good data, and what’s less good data — the more financial markets can price what they believe is the most likely and what is the tail risk.”
Also speaking ahead of this week’s Fed’s decision, Jeffrey Christian, managing partner at CPM Group, told INN that Warsh will need to prove to “the other members of the FOMC,” as well as the “financial markets and the broader economy,” that he can be “an independent, honest Federal Reserve board chair.”
“We’ve seen political hacks in the past, in the ’70s, when we had very volatile inflation and economic activity as a result of a variety of issues, including politically inspired Fed chairmen, and he’s aware of that — he knows the history,” said Christian, who thinks target rates may need to move higher to deal with inflation.
“Last week we had very high problematic CPI and PPI, and it wasn’t just the energy prices. Obviously the energy prices were very important, but if you looked at the other segments of consumer and producer prices, you had a lot of issues,” he explained, adding that Warsh “also has to be careful about Trump.”
Gold, silver prices react to Fed decision
The gold price dropped to US$4,292.75 per ounce after the Fed’s decision.
Silver also fell, sinking to US$69.04 per ounce. The precious metals are under pressure from the idea of higher interest rates for longer, which make non-yielding assets less attractive.
Equities slid following the rate announcement on Wednesday, with the S&P 500 (INDEXSP:INX) down 0.55 percent to reach 7470.37. Meanwhile, the Nasdaq-100 (INDEXNASDAQ:NDX) fell 0.56 percent to come in at 26,233.29, and the Dow Jones Industrial Average (INDEXDJX:DJI) dropped 0.08 percent, coming to 51,956.82.
The next Fed interest rate decision will come on July 29, around the time the Trump administration’s current Section 122 tariffs legally expire and the proposed Section 301 tariff regime is slated to begin.
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Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
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