The new president of the Federal Reserve aligns partially with Trump and keeps rates, but does not cut them

BarcelonaThe Federal Reserve (the Fed, the central bank of the United States) has decided to keep interest rates unchanged, despite the rising cost of living in recent months, the agency reported in a statement released this Wednesday. The meeting of the Federal Open Market Committee (FOMC, the internal body that makes monetary policy decisions) held between Tuesday and Wednesday was the first chaired by Kevin Warsh, who has aligned himself only partially with the requests of the President of the United States, Donald Trump, who since his return to the White House had demanded a cut in the price of money to boost economic growth.

Thus, the price of money in the US will remain in the range between 3.5% and 3.75%. The Fed's decision to keep rates stable – this is the fourth consecutive meeting in which the FOMC has made this decision – comes in a context of high inflation in the US. Recently, the growth in prices of goods and services consumed by American families reached 4.2% annually, a rate more than double the 2% that the central bank itself sets as its target.

In fact, the institution has revised its expected inflation for this year in the US from 2.7% to 3.4%. However, the Fed has declined to increase rates, the main tool that – according to economic theory – central banks have to curb price increases.

When central banks raise rates, the cost of borrowing for banks also increases, which translates into higher interest rates on loans they give to their customers. This increase in credit restricts the ability of families and businesses to borrow to invest or consume more, which slows down economic activity and, therefore, causes prices to fall. The Federal Reserve has therefore preferred to wait, although its new president, Kevin Warsh, has hinted that the agency could raise rates once this year. "Inflation is well above the 2% target," Warsh said on Wednesday.

Aligned with Trump, but not entirely

Warsh appeared for the first time at a press conference as Fed chairman to explain the decision made by the committee. The economist, who replaces Jerome Powell at the head of the monetary institution, is considered a man ideologically close to US President Donald Trump. Since his return to the White House in January 2025, Trump had harshly attacked Powell to force him to cut interest rates – he had even threatened him with dismissal – in order to boost economic activity. At the same time, however, the high inflation that the US is registering is one of the weak points of the New York magnate's presidency.

Thus, Warsh has fulfilled what most analysts expected, who had anticipated that the Fed would not alter rates, and has made a decision aligned with Trump, although without going to the extreme of approving the rate cut that he had demanded from Powell for months. The central bank's argument is that a rate hike would have a limited effect, because the price increase is not related to economic activity in the US, but rather to "supply disruptions that have driven price increases in certain sectors, including energy," explained Warsh.

Indeed, price increases have escalated in recent months, mainly due to the rising cost of energy – particularly natural gas and oil – as a result of the war in Iran initiated by the US and Israel. The rise in energy prices has been noticeable in gasoline, which has become drastically more expensive in recent months, a fact that has a much greater impact on the pockets of Americans than Europeans, due to the greater dependence on cars that workers in the United States have.

Similarly, the price of freight transport has also risen as a consequence of this increase in the cost of fuels, which ends up pushing up a large part of the products in the shopping basket, a fact that Warsh has promised to combat: "We must ensure that rising prices do not spread to the entire economy," he declared. However, the prospects of the conflict in the Persian Gulf ending lead the Fed's economists to believe that inflation could turn downwards in the coming months.