Updated from my previous post on “The inflation metrics that could give Warsh room to cut rates”
If you’ve followed Kevin Warsh long enough then his views on inflation should not surprise you. His first interest-rate decision as Fed chair has a clear message: rate cuts are no longer the central bank’s base case.
The Fed held its benchmark rate steady at a range of 3.5% to 3.75%, as widely expected.
But its latest projections showed officials expect the federal funds rate to end 2026 at 3.8%, up sharply from the 3.4% forecast in March. That implies roughly one quarter-point increase before year end rather than the rate cut as projected previously.
Fed officials raised their median forecast for headline PCE inflation this year to 3.6% from 2.7% in March, while the core inflation estimate climbed to 3.3% from 2.7%. The Fed also lowered its economic growth forecast to 2.2% from 2.4%.
Warsh acknowledged that inflation has remained above the Fed’s 2% goal for more than five years and pledged that the committee would “deliver price stability.”
He also said he saw no reason to reconsider the 2% target until the Fed had re-established its ability to meet it. That stance is notable given Warsh’s previous skepticism of the Fed’s traditional inflation gauges, core PCE.
He has often argued that core PCE can provide an “imperfect picture” of underlying price pressures and has highlighted measures such as the Dallas Fed’s trimmed-mean PCE and the Cleveland Fed’s median CPI.
Both these gauges had been running below core PCE earlier this year, potentially supporting the case for lower rates.
Warsh’s first meeting, however, suggests he is not yet prepared to lean on those lower alternative readings.
Instead, he has lined up a task force to review the Fed’s inflation framework and data sources, while stressing that the 2% target itself would remain outside the review for now.