Federal Reserve Meeting: Inflation and Kevin Warsh in Focus

Rising inflation and new Federal Reserve chairman Kevin Warsh will take center stage on Wednesday when the central bank meets to decide on the path forward for interest rates.

The meeting comes just days after the U.S. and Iran said they had reached a peace deal, which has not been signed yet. Still, the falling oil prices will likely ease some pressure on Warsh at his first Federal Open Market Committee as chairman.

Oil prices remain higher by 30% since the start of the year, and traders still expect Warsh and the committee will raise rates by December to blunt rising inflation.

Wholesale business inflation surpassed 6% in May and overall consumer inflation rose above 4%, both a result of the Iran war energy shock that continues to ripple through the U.S. economy.

In February, President Donald Trump told NBC News that he would not have nominated Warsh for the job unless he thought Warsh would lower interest rates quickly. But the economic picture in America has changed dramatically since then. More recently, Trump said he conveyed to Warsh that the new chairman was free to \u201cdo your own thing\u201d vis-a-vis interest rates.

For the moment, the central bank is widely expected to keep rates unchanged. The Fed's rate-setting committee typically does not shift monetary policy in response to changes in volatile energy prices.

Before taking any action on rates, FOMC members likely want to see what happens with energy prices in response to the Iran deal over the coming months.

But even at a meeting during which interest rates are not expected to be changed at all, investors will be watching closely for clues to the new chairman's views on rates, inflation and the central bank's operations at large.

\u201cWe expect the press conference to be pivotal,\u201d wrote UBS economists in a Monday note.

\u201cThis will be Kevin Warsh's first public appearance as Chair of the Federal Open Market Committee,\u201d they wrote. \u201cThat creates considerable uncertainty.\u201d

UBS's economists said the FOMC's 2:00 p.m. statement will likely serve as an early indicator of Warsh's appetite reform at the Fed.

\u201cWe expect statement changes [to] reflect the heightened inflation risks,\u201d they wrote.

Another thing to keep your eye on Wednesday: The committee's so-called \u201cdot plot.\u201d Released quarterly, the dot chart tracks where individual Fed policymakers expect interest rates to head over the next several years.