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Rookie Federal Reserve Chair Kevin Warsh delivered on his most important task at Wednesday's interest rate decision: He showed the American public that he wasn't some stooge willing to kowtow to the president who nominated him and has long demanded easier monetary policy. It's still early days, but that's an encouraging sign.
Speaking after holding rates steady at 3.5%-3.75%, Warsh repeatedly asserted his goal of getting inflation back to the Fed's 2% target. "The commitment to deliver is strong, unanimous and unambiguous," he said in response to a reporter's question. "And that's, I think, an important message. We missed for five years, and we're going to fix that." Although he also used the press conference to launch task forces to reevaluate how the Fed conducts its business, he said that the target itself was outside the scope of that project.
None of that sounded like the words of a policymaker looking to cut rates to appease President Donald Trump, an ultra-dove who has called for rates of "1% and maybe lower." That should have been a forgone conclusion with the consumer price index up 4.2% from a year earlier,(1)but Trump's pressure campaign to juice the economy has forced Fed-watchers to entertain even illogical outcomes. Warsh's affirmation that basic economic principles still hold is important because the Fed's credibility is fundamental to conducting effective monetary policy.
Citing his colleagues on the rate-setting committee, Warsh also said that the labor market looked "stable" and "there were some people around the committee who thought that it was trending better than that." Again, not what you would say if you're priming the market for the rate cuts that the interventionist president has sought.
Warsh spoke on a day when the Fed's Summary of Economic Projections showed that half of the other 18 members of the committee expected rate increases by the end of the year, a policy move that may well be prudent - but one that would invite the president's ire on social media. Warsh didn't submit a projection himself (and he sounded like he'd be happy to jettison the survey from the Fed's communication toolkit altogether). But he offered no strong pushback against the substance of the projections, except to note that circumstances in the economy were in flux and the committee would reassess when it meets again in less than two months.
All in all, Warsh sounded like a policymaker who was leaning somewhat hawkish but willing to remain intellectually humble about how the economy would evolve. And that's more or less how financial markets took him: Futures traders fully priced in a Fed hike in October, and yields on two-year Treasury notes reached the highest since February 2025.
There is room for one alternative and slightly-more-dovish read of his remarks that's worth acknowledging. First, he was careful to note that he tends to focus "on the left of the decimal point" when interpreting the 2% inflation target. I don't take him as saying that 2.9% inflation is fine, but 2.3% might be tolerable. (During an appearance in 2023, he explained his feelings on this matter: "We would not know the difference whether inflation was running at 1.7%, 2.0% or 2.3% in the United States or in the United Kingdom because we do not measure it that precisely," and he said that he tends "to prefer ranges versus point estimates.")
He also made several references to productivity, which might be a breadcrumb for the doves. He suggested that there were open questions about whether productivity gains from artificial intelligence could potentially provide supply-side disinflation. The rate-setting committee slipped a reference to productivity into its official statement, and Warsh later took pains to say that he and his colleagues felt that "strong productivity-led growth is not something that we fear, but something we embrace."
If you believe that and are willing to accept inflation modestly above 2%, then Warsh has laid out a plausible path to rate cuts in late 2026 or early 2027, but only if inflation evolves favorably from here. You can quibble with the logic of this thesis, but it's at least intellectually defensible in a way that Trump's extreme dovishness never was.
Warsh's disdain of forward guidance led him to leave his precise opinions about the future open to interpretation. This may add a measure of confusion in markets, but it also gives him cover to bide his time before courting a public confrontation with the president.
For the first year of his presidency, Trump taunted the Fed's leadership, weaponized the Department of Justice against the institution and aggressively pursued an overhaul of its personnel to fulfill his desire for easier monetary policy. Former Fed Chair Jerome Powell did a tremendous job maintaining the institution's independence and dignity. In his first press conference, Warsh was "unambiguous" (to borrow a term he used Wednesday) in saying that he would defend the institution's core values in the service of delivering price stability and maximum employment. Whether or not he ultimately takes policy in a more hawkish direction, that's what the American public really needed to hear.
(1) The Fed's inflation target is technically based on PCE, which hasn't been released yet for May, but is probably also up a bit over 4% from a year earlier.
Jonathan Levin is a columnist focused on US markets and economics. Previously, he worked as a Bloomberg journalist in the US, Brazil and Mexico. He is a CFA charterholder.
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