A Hawkish Fed Signals Higher Interest Rates Ahead

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The Fed holds rates steady, but officials hawkish tone sent stocks sliding. Plus, Tim Cook tells the journal that price increases on Apple products are, quote, unavoidable. And U.S. officials spell out the terms of the Iran peace deal. Iran is walking away, basically being paid to reopen the Strait of Hormuz with no significant hard commitments that it will make on the nuclear program and ballistic missiles. It's Wednesday, June 17th. Alex O'Slef for the Wall Street Journal. This is the PM edition of What's News, the top headlines and business stories that move the world today. The Federal Reserve today held its benchmark rate steady, between three and a half and three and three quarters percent, as was widely expected. Officials were unanimous in that decision, but they hinted more strongly that their next move will be a rate hike. It was the first meeting led by new Fed chairman Kevin Warsh, and the central bank under him might look different. Change isn't easy, changes filled with risk, but our number one goal is to get monetary policy right. Way to get monetary policy right is to deliver on the remit that Congress gave us, to deliver on price stability. We'll get into those changes with WSJ economics reporter Matt Grossman, who joins us now. But first, Matt, the policy. The big news from today's meeting is that Fed officials seem to be leaning more towards a rate hike because of the worsening outlook on inflation. Would that be a big shift for Kevin Warsh who Trump put in the role to cut rates? Yeah, this was a very hawkish Fed meeting, which we saw, especially in the dot plot, which is where the Fed officials lay out their forward-looking interest rate expectations. About half the committee... wrote down that they expect the Fed might need to raise rates this year, which is a big shift from March when no one on the Fed's committee saw rate hikes as the right move this year. We didn't hear too much from Kevin Warsh personally about what he thinks the Fed needs to do. The policy statement was very terse. Kevin Warsh did not say much about his own views of the Fed's next move in the press conference, and he did not participate in the dot plot. So he is not one of the Fed officials who submitted a forecast for what the central bank's going to do next. He was pretty candid about some of the ways that he plans to move the Fed forward, laying out a lot of plans to convene experts to review different ways that the Fed operates, including how it communicates with the public, how it handles economic data. a whole host of things that seem to be at the top of Kevin Warsh's list of priorities. What does that mean for investors? I mean, can we expect more market volatility as investors are flying a little bit more blind?

Under Chair Jerome Powell, by the time a Fed meeting rolled around, markets had a pretty good idea about what the Fed was likely to do. It wasn't likely that the Fed was going to raise rates without having signaled that beforehand. We'll really have to see how the Fed communicates over the next six weeks. And of course, some of that is under Chairman Kevin Warsh's purview. Some of it isn't because the Fed also has... 12 regional reserve bank presidents who don't answer to the Fed in Washington. So we'll have to see how they communicate. And by the time the July meeting rolls around, we may or may not have a good idea of what exactly is on the table. That was WSHA economics reporter, Matt Grossman. Thank you, Matt. Thank you. Markets had a strong reaction to today's Fed decision. Treasury yields rose and stock indexes fell. As you heard from that, it was a hawkish meeting, and investors took the emphasis on, quote, price stability as a sign that the Fed might soon raise interest rates. The NASDAQ fell 1.3%, the S&P dropped 1.2%, and the Dow was off 1%. Elon Musk's SpaceX lost nearly 5% today, its first drop since Friday's IPO.

In an exclusive interview with the Wall Street Journal, Apple CEO Tim Cook says the company plans to raise prices on its products to offset the surging costs of both memory and storage. There's been big price jumps for those chips, which are needed in the AI Data Center buildout. Cook said price increases were unavoidable, but he didn't say when the price changes would happen or how big they might be. The journal used projections from research firm Tech Insights to calculate a price tag for the next iPhone. It's the 18 Pro, and it could cost an estimated $1,300. Reporter Rolf Winkler explains. This is our math. Basically, if you factor in that the cost of those components in an iPhone 17 Pro have gone from $50. as of last year, to $200 this year, and then you gross the thing up for the margins that Apple needs to make, then you're looking at a price increase well over $200 just to maintain their margin. Rolf says this could affect Apple's bottom line. If you're talking about a potentially $200 price increase for the iPhone, there's going to be some people out there that say, you know what? Maybe I don't need to upgrade as quickly as I was going to. Maybe I'll keep this phone an extra year. That's bad for Apple's business. We're likely to find out more about the exact price tag in September when the next iPhone is expected. Other price increases, especially for Macs and iPads, could come sooner. Coming up, lawyers for Luigi Mangione set a defense strategy for his state murder trial. More on that, the Iran Peace Deal, and the next U.S. Intelligence Chief after the break.

Trump also said he wouldn't sign legislation to reauthorize Section 702 of FISA, a critical spying tool, until Congress passes a contentious GOP voter ID bill. The voting bill doesn't have the 60 votes required to advance in the Senate. And Luigi Mangione, the man accused of killing United Health Care CEO Brian Thompson, will mount a psychiatric defense. The judge in Mangione's New York state trial said defense lawyers intend to argue that Mangione killed the insurance executive due to an extreme emotional disturbance at the time. If the jury agrees with that argument, it could mean that his murder charge gets downgraded to manslaughter. That comes with a shorter potential prison term. The trial is set to begin September 8th. And that's what's news for this Wednesday afternoon. Today's show is produced by Anthony Bansy with supervising producer Tali Arbell. I'm Alex O'Solove to the Wall Street Journal. We'll be back with a new show tomorrow morning. Thanks for listening.

This podcast is brought to you by ReliaQuest. Cybercriminals are constantly attacking. They want your data. They want your identity. They want your innovation. RelyQuest fortifies your business with agentic defense, AI that detects, contains, and eliminates cyber threats in minutes. It helps your security team move faster at the work that matters most to protect the business now and delivers insights to help them predict what's next. RelyaQuest. Agentic Defense for the Enterprise. Learn more at ReliQuest.com. That's R-E-L-I-A-Q-U-E-S-T.com. This podcast is brought to you by ReliQuest. Cybercriminals are constantly attacking. They want your data. They want your identity. They want your innovation. RelyQuest fortifies your business with agentic defense, AI that detects, contains, and eliminate cyber threats in minutes. It helps your security team move faster at the work that matters most to protect the business now and delivers insights to help them predict what's next. RelyaQuest. Agentic Defense for the Enterprise. Learn more at ReliQuest.com. That's R-E-L-I-A-Q-U-E-S-T.com.