Kevin Warsh's swearing-in as the new Fed Chair has set the stage for a potential showdown with President Trump over interest rates. Trump has often asked for lower rates, but economists say strong job growth and higher inflation make a rate cut unlikely.
Financial markets expect the Fed to leave interest rates unchanged, but Trump has been vocal about his desire for lower rates. If the Fed doesn't lower rates, Warsh may disappoint Trump.
Economists say the Fed would need a major negative shock to the job market, such as a worsening Middle East conflict or job losses caused by AI, to justify lowering rates. Forecasters expect the Fed to keep its benchmark federal funds rate between 3.5% and 3.75%.
Warsh's first big challenge is inflation, which remains above the Fed's 2% target. The latest report showed PCE inflation rose 3.8% in April from a year earlier, and core PCE rose 3.3%. The Consumer Price Index (CPI) showed prices rose 4.2% in May compared with a year earlier.
The Beige Book, a report that summarizes economic conditions across the Fed's 12 regional districts, showed wage growth is mostly keeping pace with inflation. Many companies are absorbing higher costs instead of passing them on to customers.
