Sign up for the Planet Money newsletter. The world is confusing.Economics can help.The new chairman of the Federal Reserve, Kevin Warsh, holds his first news conference this afternoon.
President Trump chose Warsh to lead the central bank in hopes he would push for lower interest rates.But with inflation at a three-year high, that's probably going to have to wait.
Here are three things to know:The cost of living in May was up 4.2% from a year ago.That's the biggest annual increase since 2023.
And it's mainly driven by the spike in energy prices resulting from the U.S.war with Iran, which snarled tanker traffic in the Strait of Hormuz — a vital energy shipping corridor.
Even though oil prices have come down in recent days since the two countries agreed to extend theirceasefire, gasoline prices are still more than a dollar a gallon higher than they were before the war began.Unfortunately, the central bank's inflation-fighting tool — raising interest rates — has little effect on this kind of supply shock, since it doesn't produce more oil or gasoline.
But until inflation starts to moderate, the Fed is not likely to lower interest rates.In fact some members of the Fed's rate-setting committee have signaled their next move could just as easily be a rate increase.
In March, before the wartime price spike had really taken hold, the average Fed policymaker was projecting one quarter-point interest rate cut this year.Members of the rate-setting committee will update those forecasts this afternoon, and investors will be watching for any change.
Markets are betting that interest rates will be higher at the end of the year than they are now.Warsh has been critical of the central bank's public rate forecasts — known as the "dot plot." He thinks they limit the Fed's maneuvering room, even though policymakers have said repeatedly, the forecasts are just a guess, not a roadmap.
In general, Warsh thinks members of the rate-setting committee should keep the...