Warsh’s Fed Keeps Rates at 3.5%-3.75% as CPI Rises

The Federal Open Market Committee voted 12-0 on June 17 to maintain the federal funds rate target range at 3.5%-3.75%. The decision came as the Consumer Price Index rose 0.5% in May and annual inflation climbed to 4.2%, driven mainly by higher energy prices.

The Fed kept the interest rate paid on reserve balances at 3.65% effective June 18 and the primary credit rate at 3.75%. The New York Fed was directed to run overnight repurchase operations at 3.75% and overnight reverse repurchase operations at 3.5%, with a per-counterparty limit of $160 billion per day.

The policy statement read, ‘The Committee will deliver price stability.’ It said economic activity is expanding at a solid pace, productivity and business investment remain strong, job gains have kept pace with the labor force, and unemployment has changed little. The statement noted elevated uncertainty partly tied to conflict in the Middle East.

Headline CPI rose 0.5% in May after a 0.6% increase in April, bringing the 12-month figure to 4.2%, the highest year-over-year reading since April 2023. The energy index jumped 3.9% in May and rose 23.5% year over year. Gasoline prices increased about 7% month over month and more than 40% from a year earlier. Excluding food and energy, core CPI increased 0.2% in May and 2.9% year over year. Food rose 0.2% for the month and 3.1% year over year. Shelter costs increased 0.3% in May and 3.4% annually.

The Fed’s implementation note said the central bank may increase System Open Market Account holdings by buying Treasury bills and, if needed, other Treasury securities with maturities of three years or less to maintain ample reserves. That guidance aims to support market functioning while keeping overall policy settings unchanged.

Markets reacted to the steady policy stance and hotter inflation data: the Nasdaq fell 106.88 points, the Dow lost 54.33 points and the S&P 500 fell 30.32 points. Bitcoin moved from about $66,000 toward the low-$65,000 range. Officials pointed to the next CPI report, covering June and due in mid-July, as an important input for future decisions, and Chair Kevin Warsh will hold his first post-meeting press conference following the session.