Fed’s Warsh Faces First Major Test As Divisions Emerge Within FOMC
- Fed expected to hold rates at 3.50%-3.75% - Resilient growth, sticky inflation complicate outlook - Warsh not seen offering guidance beyond July - Announcement due 14:00 EST/18:00 GMT - Press conference scheduled for 14:30 EST/18:30
There is a growing sense that new Fed Chair Kevin Warsh must balance competing political and policy pressures if he is to stay on the right side of a dovish US president while also managing a Federal Open Market Committee that has become increasingly hawkish.
Regardless, the Federal Reserve is widely expected to leave policy unchanged within its current 3.50%-3.75% target range for the federal funds rate when it concludes its two-day meeting on Wednesday, 29 July.
Although JPMorgan's Michael Feroli said his bank was aligned with the consensus for no change, he warned the decision could prove more contentious than previous meetings. With some policymakers growing increasingly impatient over above-target inflation, he expects at least two hawkish dissents from Beth Hammack and Lorie Logan. A handful of analysts have suggested there is an outside chance either Governor Lisa Cook or Michael Barr could also dissent, albeit to reinforce the Fed's institutional independence rather than to advocate a different policy stance.
"There are sound arguments for hiking and holding, with the difference usually coming down to one's inflation forecast," Feroli said. "We think the strongest case for holding is that a hike would send a confusing signal about how the Fed responds to data."
A resilient economy
Economic data since the 17 June FOMC meeting has suggested the US economy is slowing rather than stalling.
Policymakers will receive a first look at second-quarter GDP during the second day of their deliberations. Ahead of that release, the New York Fed's Nowcast, published on 24 July, pointed to annualised growth of around 2.8%, supported by stronger business investment and a rebound in net exports following first-quarter weakness.
Inflation remains less cooperative. Core PCE accelerated to 3.4% y/y in May, reflecting higher energy costs and tariff pass-through effects, with the June report due later this week.
The labour market has softened but remains far from weak. June nonfarm payrolls rose by 57,000, well below expectations of around 115,000, although the unemployment rate unexpectedly fell to 4.2%, largely because of lower labour-force participation. The figures suggest a labour market that is cooling rather than deteriorating.
Business surveys have also remained relatively constructive. July's flash Composite PMI rose to 53.6, comfortably in expansion territory, while both the manufacturing and services ISM indices have continued to signal modest growth.
Meanwhile, the stop-start conflict in the Middle East has generated renewed volatility in oil prices, fuelling concerns over another inflation shock. So far, however, evidence of broader second-round inflationary effects has remained limited.
"We believe influential members of the FOMC are also inclined to give inflation more time to come down," Feroli said, pointing to Governor Christopher Waller's recent remarks: "If we get another hot reading on core inflation this week, then the FOMC will need to consider tightening monetary policy in the near term."
Headline CPI eased to 3.5% y/y in June from 4.2% previously, largely reflecting a 5.7% decline in energy prices, including a 9.7% fall in gasoline. Feroli argued the report suggested Waller was no longer on the verge of advocating another rate increase.
Perfunctory press conference
During his semi-annual testimony before Congress last week, Warsh offered few clues about the near-term path of monetary policy.
He has repeatedly expressed his dislike of forward guidance, meaning investors may again be left frustrated as journalists attempt to extract signals about policy beyond July.
UBS economist Jonathan Pingle said he expected little fresh information from the press conference, raising what he described as the obvious question of why hold one at all.
"The Chairman has successfully avoided hinting at his desired path of policy ahead. We expect that to continue," Pingle said. "Thus, we do not expect any 'next meeting', 'near term' or even 'data dependent' language in describing what's next."
Pingle concluded that, despite considerable uncertainty, UBS expects the FOMC to leave rates unchanged this week and throughout the remainder of 2026. "That said, we are not ignorant of the risks, and they tilt decidedly upward."
Source: BEA, BLS, Haver, UBS Projections
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- Fed expected to hold rates at 3.50%-3.75%
- Resilient growth, sticky inflation complicate outlook
- Warsh not seen offering guidance beyond July
- Announcement due 14:00 EST/18:00 GMT
- Press conference scheduled for 14:30 EST/18:30
By Harry Daniels
LiveSquawk News
@HarryDaniels71
14:00 GMT | 23 July 2026
There is a growing sense that new Fed Chair Kevin Warsh must balance competing political and policy pressures if he is to stay on the right side of a dovish US president while also managing a Federal Open Market Committee that has become increasingly hawkish.
Regardless, the Federal Reserve is widely expected to leave policy unchanged within its current 3.50%-3.75% target range for the federal funds rate when it concludes its two-day meeting on Wednesday, 29 July.
Although JPMorgan's Michael Feroli said his bank was aligned with the consensus for no change, he warned the decision could prove more contentious than previous meetings. With some policymakers growing increasingly impatient over above-target inflation, he expects at least two hawkish dissents from Beth Hammack and Lorie Logan. A handful of analysts have suggested there is an outside chance either Governor Lisa Cook or Michael Barr could also dissent, albeit to reinforce the Fed's institutional independence rather than to advocate a different policy stance.
"There are sound arguments for hiking and holding, with the difference usually coming down to one's inflation forecast," Feroli said. "We think the strongest case for holding is that a hike would send a confusing signal about how the Fed responds to data."
Economic data since the 17 June FOMC meeting has suggested the US economy is slowing rather than stalling.
Policymakers will receive a first look at second-quarter GDP during the second day of their deliberations. Ahead of that release, the New York Fed's Nowcast, published on 24 July, pointed to annualised growth of around 2.8%, supported by stronger business investment and a rebound in net exports following first-quarter weakness.
Inflation remains less cooperative. Core PCE accelerated to 3.4% y/y in May, reflecting higher energy costs and tariff pass-through effects, with the June report due later this week.
The labour market has softened but remains far from weak. June nonfarm payrolls rose by 57,000, well below expectations of around 115,000, although the unemployment rate unexpectedly fell to 4.2%, largely because of lower labour-force participation. The figures suggest a labour market that is cooling rather than deteriorating.
Business surveys have also remained relatively constructive. July's flash Composite PMI rose to 53.6, comfortably in expansion territory, while both the manufacturing and services ISM indices have continued to signal modest growth.
Meanwhile, the stop-start conflict in the Middle East has generated renewed volatility in oil prices, fuelling concerns over another inflation shock. So far, however, evidence of broader second-round inflationary effects has remained limited.
"We believe influential members of the FOMC are also inclined to give inflation more time to come down," Feroli said, pointing to Governor Christopher Waller's recent remarks: "If we get another hot reading on core inflation this week, then the FOMC will need to consider tightening monetary policy in the near term."
Headline CPI eased to 3.5% y/y in June from 4.2% previously, largely reflecting a 5.7% decline in energy prices, including a 9.7% fall in gasoline. Feroli argued the report suggested Waller was no longer on the verge of advocating another rate increase.
During his semi-annual testimony before Congress last week, Warsh offered few clues about the near-term path of monetary policy.
He has repeatedly expressed his dislike of forward guidance, meaning investors may again be left frustrated as journalists attempt to extract signals about policy beyond July.
UBS economist Jonathan Pingle said he expected little fresh information from the press conference, raising what he described as the obvious question of why hold one at all.
"The Chairman has successfully avoided hinting at his desired path of policy ahead. We expect that to continue," Pingle said. "Thus, we do not expect any 'next meeting', 'near term' or even 'data dependent' language in describing what's next."
Pingle concluded that, despite considerable uncertainty, UBS expects the FOMC to leave rates unchanged this week and throughout the remainder of 2026. "That said, we are not ignorant of the risks, and they tilt decidedly upward."