Kevin Warsh is taking a big swing at America’s inflation problem.
Alongside the Federal Open Market Committee, the new central bank chair opted to hike rates by a quarter point on Wednesday. It’s the first time the Fed has increased interest rates since summer 2023, and the first policy change under Warsh’s tenure.
Here are Business Insider’s biggest takeaways, from the hawkish dot plot to Fed independence.
The FOMC is feeling hawkish
The FOMC voted unanimously for a quarter-point hike, a uniform decision after a series of split votes over the past year.
In the committee’s quarterly economic projections, the group said it expects GDP growth to remain relatively strong, unemployment to hold steady, and inflation to stay above the FOMC’s 2% goal through the rest of the year.
Eighteen members shared their opinions on where rates will end up, with Warsh recusing himself because he doesn’t believe in forward guidance.
A majority of central bank leaders expect one more hike before the year ends. In the final meetings of the year, two members expect holds, and four see two standard-sized hikes.
As Warsh said during the press conference, inflation is the Fed’s top priority.
“The least well off have the most to gain from stable prices,” he said. “The decision we made today was the right decision to deliver on the remit that Congress gave us to ensure stable prices.”
Consumers can expect a higher rate era
As Warsh put it, “The Fed has an enormous amount of power.”
A single rate change won’t impact Americans’ daily finances. It will take months — and sustained hikes — for people to see a change in their monthly bills.
With Warsh’s renewed commitment to temper inflation, however, consumers can expect a continued era of higher interest rates. It means that mortgages, auto loans, credit cards, and other forms of borrowing will be more expensive, and savers could see stronger returns in their high-yield savings accounts. All of these interest rates closely follow Fed patterns.
Take homebuying: If 30-year fixed mortgages rise over time, Americans will be less likely to move and risk losing their lower, locked-in payments. First-time buyers could be priced out of the market.
Higher rates will impact job seekers, too. If it costs companies more to operate, they will have less cash flow available for hiring and employee promotions.
In the FOMC’s view, consumer spending and the job market are relatively strong. They aren’t immediately worried about the ripple effects of steep interest rates, but price patterns are a stressor. Hiking is the best tool the Fed has to bring inflation down.
‘Independence is a two-way street’
With a rate hike, Warsh and the committee are likely to catch the attention of President Donald Trump.
The president has been vocally in favor of lower rates, at one point threatening to cut off trade routes if the Fed didn’t act. And, because Trump nominated Warsh to the chair post, congressional leaders and economists have expressed concern that Warsh would let loyalty to Trump drive his decision-making.
On Wednesday, Warsh doubled down on the importance of Fed independence. He declined to answer any direct questions about Trump or non-monetary policy topics, like AI regulation. He’ll leave that to lawmakers, he said.
Consumers will benefit from the FOMC’s nonpartisan resolve. Lowering rates, as the president wants, could drive inflation higher. Without political interference, the Fed will be able to focus on data and the real-time economic situation.
“Part of the independence of the Federal Reserve is we stay in our lane,” he said. “Independence is a two-way street. We let people who do trade policy and fiscal policy stay in their lane.”
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