Fed Hold Likely, But What Else Should Markets Watch In Kevin Warsh’s Debut?

The United States Federal Reserve is widely expected to leave interest rates unchanged when policymakers conclude their latest meeting later on Wednesday. This marks the first Federal Open Market Committee (FOMC) gathering under new Chair Kevin Warsh following the departure of Jerome Powell.

Investors and economists are closely watching how Warsh approaches monetary policy amid persistent inflation concerns, a resilient labour market and heightened scrutiny over the Fed’s independence.

Economists Expect Status Quo on Rates

Market participants broadly anticipate that the Fed will maintain its benchmark interest rate in the 3.5%-3.75% range. Policymakers are grappling with inflation that remains above the central bank’s 2% target even as economic activity continues to show resilience.

The focus is expected to be less on the rate decision itself and more on updated economic projections, the Fed’s policy statement and Warsh’s first press conference as chair.

Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank, said, "We expect the Fed to keep rates unchanged in today’s policy. We would monitor the forward guidance and dissents if any, especially in the backdrop of recent easing of the war related supply side disruptions. We see scope for rate hikes in the US shifting from the end of CY26 towards early CY27 as energy prices begin softening."

Higher-for-Longer Outlook Remains

Nilanjan Banik, Professor of Economics and Finance at the School of Management, Mahindra University, believes policymakers are likely to maintain a restrictive stance for an extended period.

"The US Federal Reserve is widely expected to keep interest rates unchanged in the near term as it balances persistent inflation against a still-resilient labor market. Recent data suggest inflation remains above the Fed’s target, while economic growth has slowed but not weakened enough to justify immediate rate cuts. Markets are focusing less on the current rate decision and more on policymakers’ projections and guidance for the coming quarters," said Banik.

"The most likely scenario is a prolonged 'higher-for-longer' stance, with officials emphasising data dependence. Unless inflation falls convincingly or growth deteriorates sharply, meaningful rate cuts may be delayed into 2027," he added.

Oil Prices, Inflation and Warsh's Debut

The recent economic indicators present a mixed picture. While growth and employment remain robust, Nachiketa Sawrikar, fund manager at Artha Bharat Global Multiplier Fund said inflation has moved higher, prompting the Fed to adopt a cautious approach.

"Recent US economic data suggests that growth remains robust. The labour market continues to be stable and is not showing meaningful signs of weakening," said Sawrikar.

At the same time, he added that both month-over-month and year-over-year inflation measures have moved higher. "Given these mixed signals, the US Federal Reserve is widely expected to leave interest rates unchanged at this week's FOMC meeting as policymakers remain in a wait-and-see mode".

Sawrikar noted that elevated energy prices earlier this year, driven by disruptions in the Strait of Hormuz, had increased inflation risks.

However, the recent easing in oil prices following the US-Iran agreement has reduced pressure on the Fed and could allow Warsh to retain an easing bias while maintaining policy flexibility.

Markets Watching Warsh's Policy Signals

According to Bloomberg, several Fed officials have expressed growing concern about inflation and some have outlined circumstances under which rate increases could become necessary. Futures markets are currently pricing in a significant possibility of higher rates by the end of the year.

Warsh's first press conference will be closely analysed for clues on how he intends to balance inflation control with political pressure from US President Donald Trump, who has repeatedly advocated lower borrowing costs.

Updated projections and the Fed's closely watched "dot plot" are also expected to reveal whether policymakers are pushing expectations for rate cuts further into 2027.

What Businesses Expect From US Fed

Warsh is unlikely to rush into easing policy, according to Vishal Devanath, co-founder and CEO of SMERGERS. Instead, the new chair may rely on balance sheet reduction measures to tighten financial conditions while keeping rates elevated.

Meanwhile, Rishabh Jain, Director of International Business at Petros Stone LLP, said businesses with significant exposure to the US market are monitoring the Fed's direction closely, noting that interest rates, investment trends and currency movements could all influence demand across key sectors.

Warsh, in addition, will prioritise stability and communication over dramatic policy shifts, said Somdutta Singh, founder and CEO Assiduus Global.

"The market is looking for clarity more than surprises. As the new chair, his biggest challenge will be balancing inflation concerns while maintaining confidence that the Fed remains focused on long-term economic stability," he added.