The Federal Reserve (Fed) kept interest rates unchanged on Wednesday, maintaining the federal funds rate targeted between 3.5%-3.75%. The Fed is in a prolonged hold, as it last cut rates in December 2025.
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Warsh Delivers Hawkish Message, Stock Market Slides
The rate hold was not a surprise for the financial markets, which were far more interested in what new Fed Chair Kevin Warsh had to say at his first meeting in his new role. Warsh has taken over from Jerome Powell, whose head-butting with President Trump was well publicized. Trump has been pushing for lower rates for months and criticized Powell for not cutting rates. Warsh is Trump’s handpicked candidate, but will he be able to deliver rate cuts?
At the meeting, there were no dissents in the vote to hold rates, but the “dot plot” of expectations, which are the Fed’s latest rate projections, indicated that 9 of 18 Federal Open Market Committee (FMOC) members expected a rate hike before the end of the year – interestingly, Marsh abstained from the vote.
Warsh may favor lowering rates, but his message at the meeting was surprisingly hawkish. In his press conference, Warsh repeatedly used the term “price stability” and declared that the Fed is “unambiguously and unanimously” committed to deliver on 2% inflation. This will be no simple task, as inflation hit 4.2% in May, its highest level in three years.
Inflation has been hot, but much of that is due to soaring oil prices. With the US and Iran agreeing to end all hostilities for 60 days, oil prices are falling, and if that trend continues, inflation should ease, which would revive talk about a rate cut rather than a hike later in the year. However, until inflation falls significantly, rate cuts are not on the table.
US Dollar Calm, Stock Market Gives Warsh a Thumbs Down
The US Dollar is showing little reaction to the Fed’s decision to hold interest rates, and is steady against most of the majors on Thursday. The AUD/USD currency pair is showing the strongest movement, up 0.32%, trading at 0.5786. EUR/USD is up 0.09%, trading at 1.1512.
The US stock market posted sharp losses on Wednesday, as investors did not like the Fed’s talk of a potential rate hike later in the year.
The S&P 500 Index fell by 91 points (1.2%) and closed the day at 7,420.
The Nasdaq 100 Index dropped by 297 points (0.99%) and closed at 29,670.
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