As many Americans struggle to make ends meet, Federal Reserve Chair Kevin Warsh has pledged to bring inflation back to its 2% target, but it remains unclear exactly how he plans to get there as the central bank heads into its July meeting.
The Fed often finds itself at a crossroads, balancing its dual mandate of maximum employment and stable prices. It has two main tools it uses to address both – its balance sheet and the federal funds rate, a benchmark for interest rates. The Fed typically raises its target range for the rate to tame inflation and lowers it to stimulate the job market.
After three months of accelerating inflation, it slowed in June, though some forecasters expect it may tick back up amid renewed U.S.-Iran hostilities. And after three months of positive job growth, U.S. employer hiring fell in June — leaving the Fed to sort out whether these recent swings are just noise or the start of new trends.
The Fed may also be at a crossroads when it comes to delivering on Warsh’s promise of price stability for U.S. consumers. Many Americans don’t want higher interest rates on their credit cards and personal loans, but they also don’t want prices to keep rising. Raising the Fed’s benchmark interest rate could help cool inflation, but it would also make borrowing more expensive.
Dean Lyulkin, CEO of Cardiff, a small-business loan company, said Warsh’s refusal to provide forward guidance has made the outcome of the July meeting difficult to predict.
“Warsh remains an enigma,” Lyulkin said. “No one really understands whether he means what he says or what the things he’s saying mean. Until we get a little more data on this Warsh Fed, I think everyone is confused.”
Amid all the uncertainty, forecasters — many of whom are split — mostly expect the Federal Open Market Committee to leave its benchmark interest rate unchanged at a range of 3.5% to 3.75% at the end of its two-day meeting on July 29.
A promise to lower inflation, but no promise to hike. Why?
American consumers have faced inflation above the Fed’s 2% target for five years. Warsh, in congressional testimony this month, said “inflation is a choice,” and told lawmakers it wouldn’t be permanent on his watch. The Fed can’t directly control prices at the grocery store or gas pump, but Warsh has repeatedly said he views the Fed’s job as ensuring that price increases don’t broaden into the wider U.S. economy.
“If we get policy right, and I can assure you we will, the inflation surge of the last five years will be a thing of the past,” Warsh told senators on July 14.
Still, there are a few reasons why Fed policymakers may not be in a rush to raise rates at their July meeting.
As year-over-year consumer inflation rose from 2.4% in February to 4.2% in May, traders began betting on a hike. But June’s deceleration to 3.5% and a weaker jobs report gave some reason to pause. While a 9.7% drop in gas prices drove the headline inflation number lower, “core” inflation – excluding volatile food and energy prices – also fell in June, meaning the deceleration could not be disregarded as only a result of the temporary cease-fire.
“It was a pretty good report across the board, surprisingly so,” said David Royal, chief financial and investment officer at Thrivent, a financial services company.
The July meeting also comes amid court-ordered tariff refunds, new tariff announcements from the Trump administration, and escalated fighting in the Iran war – all of which will impact the economy.
A hike, a cut, or a pause?
Depending on who you ask, the Fed should do all three.
Warsh told lawmakers he expects another “good family fight” at the July meeting after FOMC members were divided on the best path for rates in June. While Warsh didn’t submit his own projections, eight members saw the Fed holding the range steady, nine saw room to hike, and one saw room to cut before the end of 2026.
“Most participants remarked on scenarios in which inflationary pressures would dissipate and inflation would soon begin to return to 2 percent,” minutes from their June meeting said. “Most participants, however, also pointed to scenarios in which, in the context of stable labor market conditions, inflation would remain elevated due to strong AI-related demand, the conflict in the Middle East, or the effects of tariffs.”
After the June meeting, some voting members of the FOMC appeared open to raising rates. Fed Governor Lisa Cook said on July 15 that she was willing to wait “a bit more time,” but that she’d be prepared to act if inflation doesn’t begin to slow and that she believes risks continue to be “strongly weighted” toward higher inflation.
"Sternly staring at inflation until it melts before our withering gaze is not an option," Fed Governor Christopher Waller said July 13 ahead of the June inflation report’s release.
After its release, White House Economic Council Director Kevin Hassett said the Fed has no “excuse” to raise rates, and that if inflation continues to slow, he’d begin expecting a cut.
"If you’re watching the data, then, you know, there’s not really an excuse for raising rates right now," Hassett told CNBC on July 15. "Another report or two like this, then I think they’d be thinking the other way."
Where are interest rates headed?
The Federal Reserve will keep its benchmark rate steady for the rest of the year, according to the median forecasts of economists polled by Reuters. However, in a separate question about the chance of a rate hike in 2026, most described the likelihood as “high,” a reversal from the month before when most viewed it as “low.”
“It’s been a long time since we were actually surprised by the Fed’s decision,” Royal said, adding that he expects more surprise moves from the Fed under Warsh than under former Chair Jerome Powell.
He added, however, that policymakers may hold off on a move until they can hear from the five task forces Warsh created to advise them on monetary policy. They are expected to deliver recommendations before the end of this year.
While Warsh has repeatedly, publicly affirmed his independence from politics, Royal and Lyulkin both said he may also be considering the potential effects of raising rates before this year’s midterm elections.
“Raising rates into the midterms is almost a suicide mission for the Republicans, and I think we have to believe that Kevin Warsh understands that,” Lyulkin said, adding that consumers would likely blame the GOP as the party in power. “If you’re in Congress, you can’t imagine telling the American people today – maybe three, four months before the midterms – that we’re going to increase the interest rates on their credit cards and their auto loans.”
President Donald Trump, who has pressured policymakers to lower rates in his second term, has said little about the Fed since Warsh was sworn in as chair in late May. After policymakers left rates unchanged in June, Trump responded, “Whatever.”
