Fed keeps rates unchanged, Warsh downplays forward guidance and sends hawkish signal
After his first policy meeting in office, Fed Chair Warsh said the central bank would make restoring price stability its top priority. Earlier, Fed officials kept rates unchanged and signaled support for a rate hike this year.
Warsh said at the press conference that persistently high prices are still weighing on Americans, but the past does not necessarily determine the future. Officials were clear and unanimous that the Federal Open Market Committee (FOMC) will work to achieve price stability.
At the same time, Warsh downplayed the importance of his colleagues' latest rate forecasts. The dot plot showed that 9 of the 19 officials expected at least one 25-basis-point hike this year, 6 expected at least two hikes, while another 9 expected rates to stay unchanged or be cut.
Warsh said other officials also lacked much confidence in their forecasts, and many acknowledged that the economic outlook is highly uncertain. On the rate debate at this meeting, he called it a “healthy internal debate” within the committee.
The new chair, who has long criticized so-called “forward guidance,” said he himself would not submit a rate forecast.
The FOMC unanimously voted on Wednesday to keep the federal funds rate target range at 3.5% to 3.75%.
After the decision, U.S. Treasuries were sold off, the dollar rose, and stocks fell. After Warsh's press conference, traders priced the odds of a rate hike by October at 100%.
FOMC statement
The post-meeting statement said officials still viewed inflation as elevated and reiterated their commitment to price stability. It continued to describe economic growth as “solid,” while noting strong productivity growth and capital investment.
Compared with previous meetings, this statement was more concise. Given Warsh's pledge to reform Fed communication, the streamlined style may signal further changes ahead.
When he took office last month, Warsh promised “institutional changes” at the central bank. In his opening remarks, he announced multiple working groups to review five areas of the Fed's operations and study possible reforms.
These groups will examine communications, the balance sheet, the Fed's use of and reliance on existing data sources, productivity and employment, and the central bank's “inflation framework.” Warsh said outside experts will be involved and Fed staff will provide support.
In response to questions, he ruled out revisiting the 2% inflation target. “Until we have re-proven that we have the ability and the resolve to achieve the 2% inflation target, I see no reason to reopen this issue,” he said.
Policymakers made several changes to the economic projections released in March: the median inflation forecast for this year was raised from 2.7% to 3.6%, and the 2026 core inflation forecast was raised from 2.7% to 3.3%.
At the same time, officials lowered the median 2026 economic growth forecast from 2.4% in March to 2.2%, while the median forecast for the unemployment rate at the end of 2026 was cut from 4.4% to 4.3%.
When asked about the Fed's decision to keep rates unchanged, Trump told reporters in France on Wednesday, “It's fine, either way.” Asked about a possible rate hike, Trump said it would “only drag on the U.S. economy and is very unnatural,” but also said he would respect Warsh's views.
