Warsh chairs his first Fed meeting amid an inflation surge and a hawkish revolt

Kevin Warsh leads his first policy meeting as Federal Reserve chairman this week, walking into a renewed surge of inflation and a wing of monetary hawks on the policy committee. Even though the rate outcome looks preordained as no change, the messaging is treacherous because it doubles as his first substantive public communication in the job. Markets are watching to learn how to read him.

A hard start, not an easy one

Core inflation has been surging so far this year, and that is before accounting for the effect of the Iran war on energy prices. The trend puts in doubt the interest rate cuts that Fed officials penciled into their last projections, released in March. Some officials and market-based forecasts are now looking toward raising rates instead.

Warsh's contradictory signals

Warsh's stated views pull in opposite directions. He has historically been a monetary hawk and told his confirmation hearing that "inflation is a choice, and the Fed must take responsibility for it" and do so "without excuse or equivocation, argument or anguish." He has also argued that the AI boom and the Trump administration's supply-side policies will enable non-inflationary growth, an intellectual case for the rate cuts the president who appointed him wants. The press conference is his first chance to show which idea prevails.

The dot plot under scrutiny

Warsh will face questions about the quarterly projections from committee participants, a practice he has sharply criticized for making officials too reluctant to pivot on new evidence. He may play down their importance even more than predecessor Jerome Powell did. Even so, Fed watchers will study the dot plot to count how many officials now anticipate raising rates this year and how many still envision cuts.

Reshaping the statement

One option for the committee is to eliminate language implying the next move will be a rate cut without replacing it with language pointing to an increase. That could satisfy the three hawkish dissenters who objected to the cut-leaning language six weeks ago, while aligning with Warsh's stated desire to pull the Fed out of giving detailed forward guidance.

What analysts expect

UBS economists led by Jonathan Pingle called the press conference "pivotal" in a note. "We do not really know what his policy views are. We also do not know what kind of communications he will pursue," they wrote, adding that his testimony was "relatively general, and at times somewhat non-committal outside of references to AI."

A communications shift to watch

Beyond policy, observers are looking for early signs that Warsh is changing how the Fed communicates. Altering the formal projections process is a committee decision, but the length and tone of the press conference he can adjust on his own. In his confirmation hearing he seemed wary of the Fed communicating too much. Powell held a roughly 50-minute press conference after each meeting, eight times a year.