SCOTT DETROW, HOST:
The Federal Reserve has a new chairman, and Kevin Warsh has his work cut out for him. Warsh met with reporters for the first time this afternoon after the central bank decided to hold its benchmark interest rates steady. The move comes as soaring energy prices have pushed inflation to its highest level in more than three years. NPR's Scott Horsley joins me now. Hi, Scott.
SCOTT HORSLEY, BYLINE: Good to be with you.
DETROW: So President Trump picked Kevin Warsh to lead the Fed in hopes that he would push for lower interest rates. What happened?
HORSLEY: The war happened, and the resulting spike in energy prices has forced Fed policymakers to rethink their outlook. You know, consumer prices in May were up 4.2% from a year ago, so rate cuts are off the table for now. And Kevin Warsh sounded every bit the inflation fighter when he addressed reporters for the first time today.
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KEVIN WARSH: Persistently high prices are a burden for the American people. This committee will deliver price stability.
HORSLEY: The Fed typically battles inflation by raising interest rates, not cutting them. And sure enough, the average Fed policymaker is now projecting that rates will rise by a quarter point this year. That's a big turnaround from the early weeks of the war, when the average Fed policymaker was expecting rates to fall by a quarter point this year.
DETROW: We've seen some moderation in gasoline prices in recent days on this news of this tentative ceasefire between the US and Iran. Is the central bank not reassured by that?
HORSLEY: I think it's just too early to know. Gas prices have come down from their recent peak, but AAA says the average price of gas is still more than a buck a gallon higher than it was when the war started. And, you know, even if tankers start moving freely through the Strait of Hormuz, energy analysts say it could take months before the market stabilizes. So Fed policymakers are projecting slower growth and higher inflation than they were a few months ago, as well as higher interest rates. You know, the rate forecasts are usually illustrated with little dots on a chart called the dot plot. But Warsh cautioned all of those forecasts should be taken with a big grain of salt.
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WARSH: I noted that all the submissions were coming in with pencils, you know, those kind with the big erasers. That's to say that I think my colleagues around the table, when they submitted their dots, understand the world is changing quite quickly.
HORSLEY: Warsh himself did not make any forecast today, so there was one dot missing on the dot plot. Warsh has criticized this kind of forward guidance because he thinks it ties the Fed's hands and makes it harder to adapt to changing circumstances. And he hinted that there might be some changes to the dot plot by the end of the year.
DETROW: What other changes is the new Fed chairman looking at?
HORSLEY: Well, he announced several task forces made up of people both inside and outside the Fed that will look at, among other things, how the central bank measures inflation and other economic data, how it invests in government bonds, how it approaches artificial intelligence and other potential productivity gains, and how it communicates. You know, once upon a time, the Fed didn't communicate very much. It kind of liked being mysterious. The trend under the last three Fed chairs has been a steady increase in communication, but Warsh suggests it might be time to dial that back a bit.
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WARSH: I had a great old mentor named George Shultz, and his mantra was press conference are useful, but when you have one, you want to make sure you have something important to say.
HORSLEY: Warsh wants the central bank to have a smaller footprint in the U.S. economy, and he wants financial markets to focus on what's actually happening out there in the world, not trying to guess how the Fed might react to it.
DETROW: One important group of people responding to what he has to say, the markets. Did they like what they heard today?
HORSLEY: Not much. The Dow Jones Industrial average tumbled more than 500 points.
DETROW: That is NPR's Scott Horsley. Thank you.
HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.
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