WASHINGTON – Kevin Warsh‘s first meeting as Federal Reserve chairman concluded Wednesday with no change in interest rates, the removal of key language indicating a bias toward future cuts, and a dramatically shorter policy statement.
The Federal Open Market Committee voted unanimously to keep its benchmark overnight borrowing rate anchored in a range of 3.5%-3.75%. The federal funds rate has held there since the central bank lowered rates by three-quarters of a percentage point in the latter part of 2025.
With a bevy of intrigue over Warsh taking the central bank helm, the meeting followed the same pattern as the others this year regarding rates but differed otherwise.
Fed officials, through their closely watched “dot plot” grid, removed their prior outlook for a rate cut this year and indicated that a hike is possible though not certain. However, the projections were missing the participation of one member, with Fed watchers suspecting that Warsh would not be submitting his outlook.
A note attached to the projection materials indicated that 18 of the 19 meeting participants submitted rate and economic projections.
Because the dot plot is an anonymous compilation of expectations, it was not possible to determine if it was Warsh who did not submit projections. But Fed watchers leading up to meeting had widely expected Warsh not to participate in the SEP. Some suspect he may try to end the feature altogether. An additional dot was missing for 2028 projections.
Warsh has been a critic of the forecasting tool as well as other forward guidance out of the committee including projections on unemployment, inflation and gross domestic product in the Summary of Economic Projections.
In addition to the rate call, which was widely anticipated in financial markets, the FOMC’s post-meeting statement also not only removed prior language seen as a nod toward an easing slant in the future but took a hatchet to the rest of the post-meeting statement.
This week’s communique checked in at just 130 words, compared to 341 for the April 29 release following the most recent meeting. The statement offered just a brief summary of economic conditions followed by a vow to control inflation.
“Economic activity is expanding at a solid pace despite elevated uncertainty that owes, in
part, to the conflict in the Middle East. Productivity growth and capital investment are strong,” the statement read. “Job gains have kept pace with the workforce, and the unemployment rate has changed little.”
“Inflation remains elevated relative to the Committee’s 2 percent goal, in part reflecting
supply shocks that have driven price increases in certain sectors, including energy. The
Committee will deliver price stability,” the committee added.
The statement also noted that the Fed would maintain its policy of “ample reserves” in the banking system, indicating there are no immediate plans to reduce the central bank’s bond holdings on its $6.7 trillion balance sheet, as Warsh has advocated.
The statement’s unanimous approval came after so-called forward guidance verbiage drew three dissents at the April meeting from presidents of regional reserve banks who wanted to preserve a two-sided option for possible hikes or cuts ahead.
In keeping with uncertainty over rates, officials also adjusted their indications of where policy is headed from here. The grid, which anonymously indicates the rate outlook for meeting participants, erased an earlier indication for one cut this year and pushed any reductions into 2027 and 2028 as policymakers weigh the durability of an inflation spike brought on by the Iran war.
The grid indicated a median funds rate projection of 3.8% by the end of the year – some 0.16 percentage point above the current level and suggesting that a hike is very much on the table. They continued to expect a long-run funds rate of 3.1%.
Officials altered their views on the economy, raising their outlook on inflation for 2026 to 3.6% on headline and 3.3% for core, which excludes food and energy. At the last update in March, committee members anticipated 2.7% rates for both measures. They also slightly lowered their projection for gross domestic product growth to 2.2%, down 0.2 percentage point from March, and cut the unemployment projection to 4.3%, down 0.1 percentage point.
The inflation surge has posed a quandary for policymakers who are trained to look past short-term supply shocks such as the energy spike associated with the war.
Recent inflation indicators have posted multi-year highs, with the consumer price index for May indicating a 4.2% annual inflation rate, though the core measure that excludes food and energy registered lower than the headline reading at 2.9%. Inflation has been above the Fed’s 2% target for the past five years.
Though he has offered little public commentary outside of his confirmation hearing and his swearing-in on May 22 as chairman, Warsh has argued that supply-shock inflation generally should be looked through when formulating policy. He also has maintained that artificial intelligence ultimately will have a disinflationary impact on the economy as rising productivity will help ease the cost of goods and services.
Still, the case of lowering rates has been made more complicated by a surprisingly resilient labor market. Nonfarm payroll growth again defied expectations in May with a gain of 172,000 while the unemployment rate, the Fed’s most closely watched metric, was at 4.3%, unchanged over the past year.
Market pricing is in line with the FOMC outlook, with no cuts expected in 2026 and a quarter-point hike anticipated by the end of the year, according to the CME Group’s FedWatch gauge.
