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The US Federal Reserve, under its new chairman Kevin Warsh, on Wednesday defied President Donald Trump’s calls for lower interest rates and left its benchmark range unchanged at 3.50–3.75 per cent. The decision, taken unanimously at the Fed’s first policy meeting chaired by Warsh, signals a hawkish turn in Washington and opens the door to a possible rate increase later this year as inflation pressures mount.
Warsh, who took office on 1 June 2026, had been expected to resist Trump’s pressure for immediate cuts. The Fed’s statement made no mention of easing, and nine of the 18 voting members of the Federal Open Market Committee now expect at least one rate rise in 2026. Analysts noted that the shift in tone unsettled global markets, with equities, bonds and currencies reacting sharply to the prospect of tighter policy under the former White House economic adviser.
Speaking at his first press conference, Warsh defended the Fed’s independence and said the priority remained bringing inflation back to target. “We will not rush to lower rates while price pressures persist,” he told reporters in Washington. The Fed cited geopolitical risks—including the ongoing conflict with Iran—as a key source of inflation risk, a factor highlighted by several international outlets.
The decision breaks a months-long pattern of dissent within the FOMC: for the first time since late 2025, the rate vote was unanimous. Yet beneath the surface, divisions remain. Some members argued for caution, warning that premature tightening could choke a fragile recovery, while others, including regional Fed presidents from Dallas and Richmond, pushed for a hike as early as August.
Trump, who had publicly urged Warsh to cut rates to boost growth, was quick to criticise the outcome. “Kevin is a very smart guy, but he’s making a big mistake,” the president told reporters in New York. Warsh, however, gave no sign of yielding, and also announced plans for a sweeping review of the Fed’s policy framework, including its inflation-targeting strategy.
Global reaction was immediate. The dollar strengthened against the euro and yen, while US Treasury yields rose by 12 basis points. European Central Bank officials, already grappling with their own inflation dynamics, privately expressed concern that Washington’s pivot could reignite transatlantic policy divergence.
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