Fed Keeps Interest Rates Steady in Unanimous Vote Under New Chairman Kevin Warsh

Federal Reserve policymakers have voted to leave interest rates steady, as rising inflation made it impossible for new Fed Chairman Kevin Warsh to deliver the lower rates that President Donald Trump has demanded.

Warsh, who was Trump's pick to replace Jerome Powell, joined the unanimous 12-0 vote in favor of leaving the federal funds rate unchanged at Wednesday's meeting in Washington, DC. Powell, who remains on the Fed's board of governors after his term as chair expired last month, also supported the rate pause.

The statement released alongside the vote was radical in its brevity. Gone was the typical forward guidance that has accompanied past decisions, replaced with a declaration of war on inflation: "The Committee will deliver price stability."

"Warsh is the new, blunt voice of the Fed," said Realtor.com® senior economist Jake Krimmel. "Heading into the meeting, the biggest question facing Warsh was one of credibility. He has nailed his credibility to the mast of taming inflation—albeit by his own standards that could change."

While the decision was widely expected following several months of alarmingly hot inflation reports, it presented an unusual tableau: Trump's handpicked Fed Chairman Warsh voting in tandem with Powell, whom Trump had severely criticized for failing to deliver ultralow interest rates.

The decision leaves the Fed's benchmark overnight rate unchanged in a range of 3.5% to 3.75%, where it has stood since December. After cutting rates three times last fall, the Fed paused at January's meeting, and markets now view at least one rate hike before the end of the year as likely.

Projections released alongside the Fed decision show that the median member of the rate-setting Federal Open Market Committee expects the central bank's policy rate to be a quarter point higher at 3.8% at the end of this year, and back down to the current level of 3.6% by the end of next year.

For homebuyers, it means mortgage rates will likely remain around their current range of roughly 6.5% for some time. If inflation continues to worsen, those rates could climb higher.

Warsh announces 'task forces' to overhaul Fed operations

Warsh, who vowed to bring "regime change" at the Fed, announced at his first press conference that he is creating five task forces to overhaul key aspects of the central bank's operations.

The committees will focus on communications, the Fed’s balance sheet, its data sources, the impact of AI on jobs and productivity, and the Fed's "inflation framework."

"Each task force will serve an objective shared by everyone in the system, shared by everyone around that table that I sat with over the last couple of days: a Federal Reserve that is clear-eyed about its mission, fit for purpose, and focused on the future," said Warsh.

Warsh said the task forces will analyze current practices at the Fed and propose actionable reforms for policymakers.

Significantly, Warsh said the Fed will continue holding press conferences after each meeting to communicate its commitment to price stability. Warsh had criticized the Fed for over-communicating, leading to questions about whether the press conference tradition would continue.

Dot plot shows rate hike by the end of 2026

The "dot plot" projection of FOMC participants' expectations for future rate policy showed that the panel expects one quarter-point interest rate hike by the end of this year.

The dot plot typically contains the anonymous forecasts of the 19 FOMC members, including the seven nonvoting members. However, the forecast issued Wednesday was missing a dot, and had only 18 forecasts.

Warsh, who has criticized the dot plot in the past as outmoded, confirmed that he had abstained from participating in the quarterly exercise.

"It has been the practice of this committee for participants to submit these projections, and I have encouraged my colleagues to continue to do so," said Warsh. "I, however, have refrained from offering any projections of my own."

Warsh also suggested that the projections from other FOMC members should be taken with a grain of salt.

"When I saw the submissions, I noted that all the submissions were coming in with pencils, you know, those kinds of big erasers," he said. “So I didn't hear tons of conviction. What I heard was kind of humility that I think we should have. I did not submit a dot. For me, it's not helpful in the conduct of policy.”

Fed outlook and mortgage rates

The Fed does not directly control mortgage rates. Rather, it sets the short-term interest rate for lending between commercial banks.

"Mortgage rates can change even if the Federal Reserve policy does not change," said National Association of Realtors® Chief Economist Lawrence Yun. "The longer-term interest rates, including mortgage rates, are partly determined by future inflationary pressures and not directly by the Fed’s short-term interest rate policy changes. Should the inflation rate subside, mortgage rates can also dip."

The Fed uses higher interest rates to fight inflation and lower rates to stimulate the job market, in line with the Fed's dual mandate of price stability and maximum employment.

Although inflation as measured by the consumer price index hit a three-year high last month, Yun believes that relief is in sight, which would be beneficial for mortgage rates.

"With housing inflationary pressure easing, especially in the oversupplied apartment sector, future inflation figures appear manageable," he said. "Moreover, AI-induced gains in worker productivity will also lessen future inflationary pressures. Therefore, the Federal Reserve policy should anticipate lighter inflation in the future, especially if oil prices soon retreat."