Warsh promises a new vision for the Fed, as his colleagues eye a rate hike instead of a cut

Washington (CNN) — Federal Reserve Chairman Kevin Warsh has promised “regime change.” On Wednesday, after leading his first policy meeting, he made it clear he is serious.

Under the new Fed chairman, officials voted Wednesday to hold interest rates steady for the fourth consecutive meeting, leaving their benchmark lending rate at a range of 3.5% to 3.75%.

But that wasn’t the biggest news.

Fed officials hinted at a potential rate hike later this year to combat the latest inflation spike tied to the war with Iran, according to their latest economic projections. And during his first post-meeting news conference, Warsh announced task forces “in each of five areas that are central to the broad conduct of monetary policy.”

Warsh, who has long criticized central bankers’ practice of releasing projections every quarter, did not submit his own. That was just one of many things that were different this Fed meeting: The Fed’s policy statement got a makeover and is now much shorter; Warsh’s news conference was also slightly shorter, at least compared to the ones conducted by his predecessor; and even more changes seem to be on the way.

Warsh wants reform

Warsh said the topics the task forces will be discussing “are timely, consequential, and worthy of a fresh look,” adding he was “enlisting some of the very best minds, both inside and outside the economics profession.”

The five task forces will focus on:

• Fed communications, including reconsidering the Fed’s quarterly Summary of Economic Projections, which shows where individual policymakers at the Fed expect short-term interest rates.
• The Fed’s balance sheet
• The central bank’s “use and reliance on existing data sources”
• “Productivity and jobs in an era of transformation”
• The Fed’s inflation framework.

Warsh said most of the committees should wrap up their work by the end of the year and will have a “straightforward charge: start with first principles, ask hard questions, examine current practice, consider alternatives and ultimately propose next steps for policy-maker consideration.”

Warsh already hinted at fewer news conferences: “My mentor’s mantra was press conferences are useful; but when you have one, you want to make sure you have something important to say,” he told reporters.

Warsh on inflation and the outlook

Warsh said he and his colleagues decided at this meeting to not give “forward guidance,” or any hint where interest rates may be heading. He said that “was not well-suited to the current policy conjuncture.”

It’s a stunning departure from how the Fed operated under former Fed leader Jerome Powell, which proactively gave markets forward guidance.

Still, Warsh affirmed that he and his colleagues “will deliver price stability.”

“We have the capability and commitment to deliver on our price stability objective of 2%,” he said. “The commitment to deliver is strong, unanimous, and unambiguous. And that’s an important message we’ve missed for five years. And we’re going to fix that.”

Several of Warsh’s colleagues have already telegraphed concerns with inflation, but that’s putting the new Fed chief in an awkward position. President Donald Trump appointed Warsh to cut rates, but nearly every person on the Fed’s rate-setting committee of 12 is expecting to either hike rates for the first time since 2023 or stay on hold. Only one official expects a rate cut this year.

Warsh didn’t elaborate beyond what the projections and policy statement indicated.

For officials to hike rates, they need see price pressures spreading well beyond the energy market to raise rates, and so far, that hasn’t been the case, with “core” inflation measures that strip out volatile energy and food prices going up more modestly in recent months. And inflation could very well fall back down to earth, if the peace agreement between the United States and Iran holds up, fully reopening the Strait of Hormuz, a key waterway through which one-fifth of the world’s oil passes. Officials expect to deliver just one rate cut in 2027, which would leave rates where they are now, if they do hike later this year.

Warsh on the Fed renovation

Warsh said he has already spoken with the Fed’s inspector general, Michael Horowitz, on his review of the central bank’s ongoing $2.5 billion renovation to its Washington, DC, headquarters.

He said a report on whether there were any abnormalities or mistakes in planning and executing the project is due sometime this summer.

Trump and his allies have repeatedly criticized the project, claiming the cost overruns reflect mismanagement, in an effort to pile pressure on Powell. The Justice Department had opened an investigation into the matter, but closed it earlier this year and deferred it to the IG.

The ongoing review of the project is precisely why Powell is still at the Fed, even though the Fed chair usually steps down altogether after finishing their term at the helm.

Warsh said he’s eager to see if there’s anything the central bank could do to “be good stewards of taxpayer money and make sure that we’re delivering on the promises that we made.”

The Fed is a self-funded organization, however. And the renovation is financed through its own earnings, not taxpayer dollars.

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