The Federal Reserve is seen as more likely to leave interest rates steady on Wednesday even as a growing number of its policymakers fret openly about inflation, but the outcome is unusually uncertain because of the no-guidance regime adopted by U.S. central bank chief Kevin Warsh.
In the end, with his 18 Fed colleagues evenly split at the last meeting on whether to hike rates this year, it will be up to Warsh to sway the outcome in the direction he desires. It is also uncertain whether he will stick to his policy of providing little explanation and no forward guidance following the policy decision, which is likely to draw dissents either way.
The Fed's policy-setting committee is due to announce its decision at 2 p.m. EDT (1800 GMT). Warsh is scheduled to hold a press conference beginning half an hour later.
Warsh, who took over as head of the central bank in May, has said he has "no tolerance" for inflation that has been running above the Fed's 2% target for more than five years, and up until last month was accelerating as the U.S.-led war with Iran pushed up global fuel and food prices and investment in data centers and other spending tied to artificial intelligence drove up demand.
At the same time, Warsh won backing from all his colleagues at the June 16-17 meeting to leave the Fed's benchmark interest rate in the 3.50%-3.75% range.
Price pressures, however, have eased since Fed policymakers gathered last month. Consumer price inflation slowed to 3.5% on a year-over-year basis in June, from 4.2% in May, and oil prices have fallen sharply this week on renewed hopes of another ceasefire between the U.S. and Iran.
"We think the Fed will probably not hike. It would be odd to do so right after the better June inflation print, given an uncomplicated path to hike in September if needed," said Krishna Guha, vice chairman of Evercore ISI. "But we cannot take the probability too low given Warsh's refusal to set out his strategy. ... We do not see broad pressure on the committee to hike now. But the votes are there if Warsh wants to go."
In the run-up to this week's two-day meeting, Dallas Fed President Lorie Logan and Cleveland Fed President Beth Hammack both indicated support for higher rates to put inflation back on a path to the 2% goal. Economists expect at least one of them to dissent should the majority of policymakers decide to leave rates unchanged.
Financial markets are pricing about a one-in-three chance of a quarter-percentage-point rate hike. A few economists say Warsh would be smart to deliver that surprise at this week's meeting.
"It's better to do a little now instead of a lot later," Neil Dutta, the head of economics at Renaissance Macro Research, wrote in a note.
The Fed, under Warsh's predecessor Jerome Powell, cut rates three times in 2025 to head off what most policymakers felt was a weakening labor market that has since stabilized. Inflation, which seemed to be cooling last year, reversed course in 2026, June's improved reading notwithstanding.
"If last year was about taking out some insurance, this year is about giving some of it back," Dutta said.
RATE CUT NOT IN THE CARDS
A rate hike would not likely be welcomed in the White House.
President Donald Trump skewered the Powell-led Fed for failing to deliver the big rate cuts he thought were needed to boost the economy and he hand-picked Warsh with the hope that doing so would open the door to easier policy. So far, Trump has blamed other members of the Fed's Board of Governors for tying Warsh's hands on rates.
"We should have the lowest interest rate in the world," Trump told reporters aboard Air Force One on Monday. "Kevin is fantastic, but he's got a board, and the board members are very political."
The possibility of a rate cut has garnered almost no backing from Fed policymakers. Their latest projections, published after the end of last month's meeting, showed just one of them anticipating that rates would be lower by the end of this year.
At the other end of the spectrum, and illustrating the uncertainty around the outcome of this week's meeting, one analyst even gamed out the possibility of a supersized half-percentage-point hike.
"In our view, hiking at all (especially 50 basis points) would be driven more by posturing and credibility motives," Derek Tang, an analyst with forecasting firm LH Meyer, wrote in a note, even as he argued that a big rate hike would put to rest any doubts of Warsh caving to presidential pressure and would mark the "regime change" that the new Fed chief promised he would bring to the central bank.
During his June 17 post-meeting press conference, Warsh said he viewed financial markets as one of the most important sources of information for central bankers. One reason he does not want to tell markets what he is thinking about the appropriate path of interest rates, he said, is to force investors to react to the economic data instead of policymakers' pronouncements.
"With little guidance on the reaction function under the new chairman, markets are filling the void with speculation that Warsh may be eyeing a surprise hike to reinforce anti-inflation credibility," Barclays economists wrote in a note. "The risk is that the speculation itself begins to shape policy."
