During the swearing-in of Kevin Warsh as the new Chairman FedPresident Donald Trump told him to be independent and make his own decisions. Trump said Warsh should not listen to him or anyone else and instead do what is best for the economy.
Warsh’s first big test may come after the Fed’s next policy meeting. Financial markets expect the Fed to keep interest rates unchanged. President Donald Trump has often called for lower interest rates because it would make loans and borrowing cheaper. Warsh could disappoint Trump if the Fed doesn’t cut interest rates.
The Fed typically lowers interest rates when the economy slows and jobs become harder to find. It raises interest rates when prices rise too fast and inflation becomes too high. When officials believe policy is already in a good place, it leaves rates unchanged. Economists say strong job growth and rising inflation related to the Iran war reduce the likelihood of a rate cut, USA Today noted. Some traders are even beginning to anticipate a possible rate hike later in 2026 or early 2027.
Bill Adams, chief U.S. economist at CITIC Bank, said the Fed would likely need a major negative shock to the job market to cut interest rates. Adams said this could come from worsening conflicts in the Middle East or job losses caused by artificial intelligence. According to USA Today, Adams said that without these issues, it will be difficult for the Fed to justify cutting interest rates.
Forecasters expect the Fed to keep the benchmark federal funds rate between 3.5% and 3.75%. The next Fed meeting will begin on June 16 and last two days.
Also read: Crude prices drop 4.7% after US-Iran deal ends war and reopens Hormuz: Here’s what the experts say
Inflation is emerging as Wash’s first big challenge
The Fed mainly focuses on the personal consumption expenditures (PCE) price index. The latest report shows that PCE inflation increased by 3.8% year-on-year in April. Core PCE, which excludes food and energy prices, rose 3.3%. Both figures remain above the Fed’s 2% inflation target.
this consumer price index (CPI) showed that prices increased by 4.2% year-on-year in May. The increase was largely driven by higher gasoline prices. This was the largest CPI increase in about three years. Core CPI inflation rose 2.9% year-on-year.
Core CPI rose only 0.2% in May. This was slower than April’s 0.4% increase. Economists say that could mean higher fuel prices don’t trickle down as strongly to other goods and services.
According to “USA Today”, Boston College professor Brian Bethune said that the PCE censored average may not be the best inflation indicator currently. Bethune said that the effect is better in stable periods such as 2009-2019. He believes that current inflation is driven by supply shocks such as tariffs, oil price spikes and other unusual events. In this case, the PCE’s revised average may underestimate inflation, Bethune said.
Regardless of which inflation measure is used, inflation remains above the Fed’s 2% target. Inflation has remained above this target since spring 2021.
What the Beige Book says about the economy
According to “USA Today”, the Beige Book is a report that summarizes the economic conditions of the Federal Reserve’s 12 regions. Federal Reserve policymakers use it when making interest rate decisions.
The latest Beige Book was released on June 3. The report shows that wage growth has generally kept pace with inflation. Many companies are absorbing higher costs rather than passing them on to customers. This suggests that businesses believe consumers cannot afford more price increases.
University of Michigan Consumer Sentiment Index opinion poll It fell to a record low in May. Joanne Hsu, director of consumer surveys, said 57% of respondents believe high prices are hurting their personal finances, USA Today reported.
The Beige Book shows that growing demand for data centers is creating more manufacturing jobs. However, many industries are still in a “low employment” and “low fire” environment. This means that the company will neither hire aggressively nor lay off employees on a large scale.
The leisure and hospitality industry added employees in May. According to USA Today, Bethune said some of the hires may be temporary and related to the World Cup. Health care and social assistance remain among the strongest sources of job growth.
