MW The key to the upcoming Fed meeting? How Warsh reacts to all the hints of a rate hike.
By Greg Robb
The new Fed chair might make swift changes to how the central bank communicates
New Federal Reserve Chair Kevin Warsh speaks during his swearing-in ceremony at the White House last month.
With a strong labor market and few signs that inflation is easing, experts on Wall Street and in Washington expect the Federal Reserve's upcoming interest-rate meeting in 10 days to be dominated by hints that the central bank's next move could be an interest-rate hike.
Over the past eight weeks, Fed officials have become nearly unanimous in their growing concerns about rising inflation. The strong May jobs report released Friday, which showed an improving U.S. labor market, is only likely to strengthen their focus on inflation.
When the war with Iran started in late February, economists knew energy prices would spike, but thought this would weaken demand and keep inflation from rising. But recent data have shown the threat from Iran conflict is more on inflation side and less on growth side.
The June gathering is the first meeting to be orchestrated by new Fed Chair Kevin Warsh, and investors and economists want to see how he reacts to these hints of a shift in policy. As he campaigned for the job, Warsh made the case for cutting rates - the policy favored by the Trump administration.
A decision to hike would mark a major change, as the Fed has been on an easing course since late-summer 2024.
"A critical outcome of the meeting will be to see how in line Warsh is with that hawkish view," said Michael Gapen, chief U.S. economist at Morgan Stanley.
Will he embrace the new narrative or will he argue, like Trump White House officials, that further rate cuts are still possible, even with a strong labor market?
Fed officials are now in their blackout period, and will make no public comments on interest-rate policy until their meeting on June 16-17. The Fed is expected to release a policy statement on Wednesday, June 17, followed by a press conference from Warsh.
3 big hints of a shift toward rate hikes
Economists expect the Fed to hold rates steady at the June meeting, but they'll be looking for three major signs that central-bank officials are open to hikes later this year.
The biggest shift at their policy meeting will likely be a decision by Fed officials to remove language from their policy statement that indicated the next policy move would be a rate cut.
This "easing bias" was put in place last December, after the Fed voted on the last of three consecutive rate cuts that brought its benchmark policy rate down to a range of 3.5% to 3.75%. Removing that language indicates that the next Fed move could equally be a rate hike or a rate cut.
The fact that the easing bias remains in the statement is "a gift" to Warsh, said former Cleveland Fed President Loretta Mester. It gives him the opportunity to remove it, showing he's open to potential rate hikes. This could help him shed the market's image that he is going to show single-minded support for rate cuts, as favored by President Trump.
Removing the easing bias in the statement would be a "pretty straightforward and relatively painless way" for Warsh to signal that he's going to use his reading of the economy to guide his policy decisions, Mester said in an interview with MarketWatch.
"I think there's still concern that he might just be leaning towards lower interest rates because the administration wants that," she said.
The second big hint of a shift toward rate hikes would come in the Fed's "dot plot" projections of the likely path of interest rates.
This new dot plot could show that more Fed officials expect rate hikes than rate cuts, said Matthew Luzzetti, chief U.S. economist at Deutsche Bank, in an interview.
This would show just how far the Fed has moved in the past three months. In March, no Fed officials penciled in a rate hike. Instead, seven of 19 Fed officials projected one rate cut this year, while seven backed holding rates steady. There were five officials projecting two or more cuts.
The third hint of rate cuts might come in how the Fed views the distribution of risks.
Charts released by the Fed will likely show spiking concerns about higher inflation and diminishing worries about the state of the labor market. Gapen at Morgan Stanley said this is important because the Fed could justify rate hikes if there is a risk of higher prices.
Mester said there is a good chance the Fed will raise rates this year, and that the move could come as early as later this summer.
"I hope that, at the meeting, they do have a discussion about what they need to see to move rates up, because I think we're getting to the point where you could support a rate hike in this environment," Mester said.
Rate hikes could cool demand that is now outpacing supply amid energy bottlenecks stemming from the Iran war as well as robust corporate spending on AI, she said. Such a move would be the first hike since July 2023.
Will Warsh make immediate changes to how the Fed communicates?
Experts will also be watching to see how Warsh approaches communicating with the public following his first meeting. The new chair has promised "regime change" at the Fed and has said Fed officials are too eager to make public comments.
Ellen Meade, an associate professor of economics at Duke University, said she thinks Warsh will want to demonstrate at his first press conference that there is a "new world" at the Fed.
"Warsh wants to show you he's coming in and breaking china. And communications is a place he could do that relatively more rapidly than in other areas," she said.
This might include not providing his own economic forecast, such as not contributing to the dot plot. He could also shorten the length of his press conference, from the roughly 45 minutes typically seen under his predecessor Jerome Powell.
But Mester said she believes Warsh will move more slowly and not make a "big splash."
"He's trying to build rapport with his colleagues as well as the public," she said.
It may be that Warsh uses his first press conference to set up different subcommittees to start work on his priorities of shrinking the Fed's balance sheet and overhauling how it communicates with markets and the public.
"He is a very good communicator," Mester noted. "He's quite able to do this job."
-Greg Robb
This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
June 06, 2026 07:00 ET (11:00 GMT)
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