The Federal Reserve kept interest rates unchanged Wednesday but signaled they may support an increase in rates later in 2026, if needed to combat persistent inflation.
The stance is a notable change from the Fed's last quarterly meeting, where none of the bank's policymakers signaled the need for rate increases. Now, at the halfway point of the year, nine members may call for a rate hike sometime in 2026 and six members suggest two or more may be needed.
The meeting was the first for Kevin Warsh, the newly appointed chair of the agency.
"We recognize that inflation has been running well ahead of the Fed's long-stated inflation goal of 2%. That's been going on for more than five years," Warsh said at Wednesday's press conference. "Persistently high prices are a burden for the American people. But the recent past need not be prologue. I am pleased to report that members of the FOMC are unambiguous and unanimous. This committee will deliver price stability."
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Warsh has said he wants the Fed to have a lower public profile so its officials are less pressured as they make decisions to steer the economy. As Wednesday's meeting concluded, he did not offer any forecast for policy changes for coming years.
Such forward guidance was "not well-suited to the current policy conjuncture," Warsh said.
Warsh announced he would begin task forces to review and update the Fed's approach to central responsibilities: Fed communications, the balance sheet, the "use and reliance on existing data streams," productivity and jobs, and inflation.
Each task force will "have a straightforward charge: Start with first principles. Ask hard questions. Examine current practice. Consider alternatives. And ultimately propose next steps for policymaker consideration."
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President Donald Trump, who appointed Warsh, has aggressively pushed the Fed to lower interest rates, and attacked Warsh's predecessor Jerome Powell for not making cuts deep enough to satisfy him. Powell remains on the board of governors for the Fed, where he can serve until January 2028.
Inflation has spiked since the beginning of the war in Iran in February. It now sits at 4.2%, thanks largely to the increased costs of oil and fuel.
The producer price index — which captures inflation before it reaches consumers — went up 1.1% in May, and is up 6.5% compared to May 2025. That’s the highest year-over-year change since November 2022.
Meanwhile, the effects of any peace deal are likely to take more time to manifest in the market, and are not expected to influence the Fed's decisions on Wednesday.
This is a developing story and will be updated.
