Fed Expected to Hold Rates Steady, Offering Little Relief on Affordability

The Federal Reserve is expected to hold interest rates steady at its policy meeting this week — the first helmed by new Fed Chair Kevin Warsh — doing little to ease the affordability concerns plaguing many U.S. households.

President Donald Trump's pick to lead the central bank previously indicated he would consider cutting rates, but with the current inflation rate roughly double the Federal Reserve's 2% long-term target, the central bank may be more likely to consider hiking rates, experts say.

That would put Warsh in opposition to Trump, who has said that rates should be sharply lower. Fed funds futures indicate virtually no chance of a rate cut at the June meeting, according to CME's FedWatch tool.

"A Trump-friendly Warsh would probably still try to toe the line between sounding neutral and acknowledging that hikes are a possibility," according to a June 11 research note by Capital Economics.

Both high interest rates and high prices can hurt consumers, so the Fed's moves require a delicate balance. For now, "Americans should expect rates to remain higher than they'd like in the near future," said Matt Schulz, chief credit analyst at LendingTree.

'Trimmed mean'

Economists and policymakers — including outgoing Chair Jerome Powell — often cite "core" inflation to gauge the trajectory of prices. The "core" measure strips out energy and food prices, which can be volatile from month to month.

During his Senate confirmation hearing in April, Warsh said he prefers an alternative method — "trimmed averages," also known as the "trimmed mean" — to measure underlying inflation in the U.S. economy.

At a high level, this measure excludes the categories of goods and services in which price changes, up or down, were most extreme during the month.

The assumption is that these price changes are due to "idiosyncratic factors" that will ease, rather than persistent inflationary pressures, said Mark Zandi, chief economist at Moody's.

"I find it useful," Zandi said of the trimmed mean. "I'd say, though, that I'm not sure I'd rely on it. Some of these things that you think might be temporary turn out to be persistent."

It's an important distinction for interest-rate policy: The "core" and "trimmed mean" metrics are sending different signals right now, said Joe Seydl, a senior markets economist at J.P. Morgan Private Bank. They're moving in opposite directions, with core inflation moving higher and the trimmed mean shifting lower, he said.

"It's quite convenient right now for a dovish view," Seydl said. A dovish view indicates the Fed is more inclined to lower interest rates.

How the Fed affects your finances

The Federal Reserve sets the interest rate, called the Fed funds rate, that banks charge each other for overnight lending. That rate, in turn, affects many consumer borrowing and savings rates.

When the Fed raises its benchmark rate, borrowing becomes more expensive for consumers and businesses, which can cool the economy and, in turn, inflation. Cutting the rate can spur spending and boost the economy, but also fuel higher prices.

Generally, short-term rates, such as credit card rates, are closely pegged to the Fed's benchmark. Longer-term rates, such as mortgage rates, are more influenced by inflation and other economic factors.

Where consumers stand

For consumers, the direction of monetary policy has a big impact on household budgets.

The prospect of higher borrowing costs could add another financial headwind, at a time when rising energy costs are already making it harder for many households to keep up.

"Elevated essential expenses, particularly those tied to energy, continue to strain household budgets and contribute to ongoing financial uncertainty," said Michele Raneri, vice president and head of U.S. research and consulting at TransUnion. "These dynamics are expected to further reinforce the K-shaped pattern."

The K-shape is often used to reflect consumers' diverging economic experiences: Higher-income households are increasingly better off, while lower-income households are struggling to make ends meet.

An estimate by the U.S. Congress Joint Economic Committee — Minority found that tariffs and the war with Iran cost each household more than $3,100 from 2025 through May of 2026.

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