Fed leaves interest rates unchanged, for now

President Donald Trump’s new Federal Reserve chairman, Kevin Warsh, said the Fed opted to leave the federal interest rates untouched during his first policy announcement on Wednesday. The latest projections marked the fourth consecutive meeting where the Fed held the rates steady at a range of 3.5% to 3.75%.

However, almost half of the central bank’s policymakers indicated they could support a rate hike later this year, according to economic projections. That news caused the Dow Jones Industrial Average to close down more than 500 points Wednesday, with both the S&P 500 and the Nasdaq losing more than 1% of their value.

What else did Warsh say? Productivity growth and capital investment remained strong, while economic activity continued to expand, despite rising uncertainty due to the conflict in the Middle East, Warsh said during a Wednesday briefing. He acknowledged the nation’s 4.2% inflation rate, exceeding the board’s longstanding 2% goal. Inflation has been high for more than five years now, but the committee aimed to deliver on price stability, he said.

What about the interest rate? Fed leaders expected the nation’s real GDP to rise by 2.2% this year, and 2.3% next year, with the personal consumption expenditures, or PCE, inflation index to land at 3.6% this year and drop to 2.3% next year, according to Warsh. The chairman also reported the Fed's interest rate median estimate by the end of 2026 was 3.8%, slightly higher than the current rate that has frustrated President Donald Trump, who criticized the previous Fed chairman, Jerome Powell, for his reluctance to lower the interest rate. The median projection for the Fed’s interest rate by the end of 2027 was about 3.6%, according to Warsh.

Did Warsh speak to his vision for the Fed? Changes in leadership allow current practices to be reviewed and reconsider the best ways to meet an organization’s objectives, Warsh said. Warsh and other Fed leaders planned to discuss and identify possible changes to improve monetary policy. He cited the latest report’s shorter and simpler format as an example of the expected changes.

Dig deeper: Read Lauren Smyth’s report in WORLD Magazine on how economic worries fuel uncertainty without impacting spending habits.