Warsh-led Fed likely to hold rates steady: What new leadership means
The Fed is expected to keep interest rates steady at this week’s policy meeting (the first meeting being held by new Fed Chairman Kevin Warsh); This meeting does little to ease affordability concerns plaguing many U.S. households.
President Donald Trump’s pick to head the central bank has previously indicated he would consider lowering interest rates, but experts say the central bank may be more likely to consider a rate hike because the current inflation rate is roughly twice the Federal Reserve’s long-term target of 2%.
That would put Warsh in opposition to Trump, who has said rates should be much lower. Fed funds futures show virtually no chance of rate cut at June meeting, according to CME FedWatch tool.
“A Trump-friendly Warsh will likely still try to toe the line between appearing neutral and acknowledging that raises are a possibility,” according to a June 11 research note from Capital Economics.
The Fed’s moves require a delicate balance, as both higher interest rates and higher prices can harm consumers. For now, “Americans should expect interest rates to remain higher than they would like for the foreseeable future,” said Matt Schulz, LendingTree’s chief credit analyst.
‘trimmed average’
Economists and policymakers – including the outgoing President Jerome Powell – often refers to “core” inflation as a way to gauge the direction of prices. The “core” measure excludes energy and food prices, which can vary from month to month.
At his Senate confirmation hearing in April, Warsh said he favored an alternative method of measuring underlying inflation in the U.S. economy — “trimmed averages” or “truncated averages.”
At a high level, this measure excludes categories of goods and services with the most extreme upward or downward price changes during the month.
Moody’s chief economist Mark Zandi said the assumption was that these price changes were due to “idiosyncratic factors” that would ease rather than persistent inflationary pressures.
“I find it helpful,” Zandi said of the shortened average. “I can say, though, that I’m not sure I can trust it. Some things you thought might be temporary turn out to be permanent.”
That’s an important distinction for interest rate policy: “Baseline” and “trimmed average” benchmarks currently send different signals, said Joe Seydl, senior market economist at JP Morgan Private Bank. He said they were moving in opposite directions, with core inflation rising and the trimmed average shifting downward.
“It’s pretty good for a dove scene right now,” Seydl said. The dovish view suggests the Fed is more likely to cut interest rates.
How does the Fed affect your finances?
The Federal Reserve sets the interest rate that banks charge each other for overnight lending, called the Fed funds rate. This rate affects many consumers Borrowing and savings rates.
When the Fed raises its benchmark interest rate, borrowing becomes more expensive for consumers and businesses, which can cool the economy and thus inflation. Lowering the rate could encourage spending and stimulate the economy, but it could also lead to higher prices.
In general, short-term interest rates, such as credit card rates, are closely tied to the Fed’s benchmark. Long-term rates, such as mortgage rates, are more affected by inflation and other economic factors.
Where consumers stand
For consumers, the direction of monetary policy has a major impact on household budgets.
At a time when rising energy costs are making financing difficult for many households, the possibility of higher borrowing costs could create a new financial headwind. continue
“Rising essential expenses, especially those tied to energy, continue to strain household budgets and contribute to ongoing financial uncertainty,” said Michele Raneri, TransUnion vice president and head of U.S. research and consulting. “These dynamics are expected to further strengthen the K-shaped pattern.”
The K-shape is often used to reflect consumers’ different economic experiences: High-income households are becoming increasingly better off, while low-income households are struggling to make ends meet.
An estimate by the Joint Economic Committee of the U.S. Congress — Minority finds tariffs and war with Iran cost every household more than $3,100 From 2025 to May 2026.
