Federal Reserve policymakers show support for rate hikes as Warsh reins
in guidance
[June 18, 2026] By
CHRISTOPHER RUGABER
WASHINGTON (AP) — The Federal Reserve kept its key rate unchanged
Wednesday yet almost half the central bank’s policymakers said they
could support a rate hike later this year.
The unexpectedly aggressive tilt toward higher rates would disappoint
President Trump and suggests heightened concerns about persistent
inflation among Fed officials.
In an unusually short statement after their two-day meeting, the
officials dropped language that had suggested their next move would be
to cut the key rate. The brief statement reflects the influence of new
chair Kevin Warsh, who was appointed by Trump. Warsh has previously
criticized the Fed for commenting too broadly on the economy.
Still, Warsh's 18 colleagues on the Fed’s rate-setting committee sent a
clear message in a set of quarterly projections released Wednesday: Nine
signaled they supported higher rates this year, with six of those
supporting two or more quarter-point increases.
It’s a sharp change from March, when no policymakers penciled in a hike
and the committee as a whole forecast one cut in 2026. The change is an
acknowledgement that inflation is at its highest level in three years
and many officials have said in recent speeches that if inflation
doesn’t decline, higher rates may be necessary in the coming months.
Warsh, in his first news conference as chair, also underscored the Fed's
determination to bring inflation down to the central bank's 2% target,
suggesting he will take a hawkish approach as chair. “Hawks” typically
support higher rates to quell inflation, while “doves” often support
lower rates to boost hiring.
“We’ve missed (on inflation) for five years and we’re going to fix
that,” he said. “When we deliver on our price stability objectives,
which we will, the American people will feel as though the hardships
that they’ve been living through ... are in the rear view mirror.”
Warsh had supported rate cuts last year while under consideration to be
Trump's pick as Fed chair to replace Jerome Powell. Since returning to
the White House last year, Trump repeatedly attacked Powell for not
cutting rates more deeply.
Warsh did not hint whether he was leaning toward hiking rates, but
economists saw his message at the press conference as hawkish.
“The risk that they might need to raise rates has clearly risen given
what we got today,” Matthew Luzzetti, chief U.S. economist at Deutsche
Bank, said.
Financial markets agreed. Stock prices fell sharply after the Fed issued
its statement and Warsh spoke. Bond yields rose.
Trump, for his part, appeared to accept the Fed's decision.
“We have a very good guy over there now so I’m guided by what he wants
to do,” Trump said in France, where he attended a meeting of leaders
from the world's seven largest economies.
All told, another eight officials signaled they would support keeping
the rate unchanged, and one penciled in a cut. Warsh did not submit a
forecast for how the Fed might change its key rate.
In another shift, the Fed's post-meeting statement contained no hints
about its next moves, or what economists refer to as “forward guidance.”
Previous Fed chairs, starting with Ben Bernanke, saw such guidance as a
benefit to the Fed, because it prodded financial markets to move rates
either higher or lower, depending on what the Fed preferred.
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Federal Reserve Chairman Kevin Warsh speaks during a news conference
following the Federal Open Market Committee meeting, Wednesday, June
17, 2025, in Washington. (AP Photo/Rod Lamkey, Jr.)
 Warsh told reporters at a press
conference that guidance was not “well suited to the current policy
conjuncture." He has previously criticized forward guidance, as well
as the quarterly projections, for potentially locking the Fed into a
specific rate path.
Warsh also said he is forming five task forces to examine such areas
as how the Fed communicates, the sources of data it uses in making
policy decisions, and the frameworks it uses to evaluate inflation,
all with the goal of making sure the Fed is “clear-eyed and focused
on the future.”
Diane Swonk, chief economist at accounting firm KPMG, said the use
of the task forces indicates Warsh is not looking to impose changes
on the rest of the Fed, but instead is seeking consensus.
“He wants buy in,” she said. "He’s not trying to change it by
command.”
If the Iran war is resolved, gas prices will likely continue to
decline and inflation may cool in the coming months. But prices of
many goods and services — such as clothes, dental care, and child
care — were rising before the Iran war, and inflation has been above
the Fed’s 2% target for five years, suggesting that there may still
be inflationary pressures in the economy.
Warsh also faces a sharply different economic environment than when
he appeared to campaign for the job of Fed chair last year. Back
then, he was outspoken in favor of lower interest rates, as Trump
has demanded. He pointed to the development of AI as a technology
that could vastly expand the economy's ability to produce goods and
services cheaply, which would over time bring down inflation.
Even then, many economists were skeptical of his claim. At least in
the short run, analysts note that soaring investment in
semiconductors and computing equipment is contributing to higher
inflation.
Indeed, since the Iran war began Feb. 28, inflation has accelerated
to a three-year high of 4.2%, lifted mostly by costlier gas stemming
from the Iran war. The Fed typically fights higher inflation by
raising its key interest rate to cool spending and growth.
Trump has announced a peace agreement that could bring the
three-month conflict to an end, but it's not clear if peace will
hold. And even if oil flows freely out of the Middle East again, it
could take months for prices of gas, groceries, and items such as
airline fares, to cool.
At the same time, hiring has picked up in recent months, removing a
key rationale for cutting rates. In January, the Fed forecast that
it would reduce rates twice this year, as part of its quarterly
economic projections. A big reason for those potential cuts is that
employers were shedding jobs and policymakers worried that the
unemployment rate would rise. The central bank typically cuts its
key rate to spur economic growth and hiring.
But earlier this month a government report showed that hiring jumped
in May, when employers added 172,000 jobs, the third straight month
of solid job gains.
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