WASHINGTON – Kevin Warsh’s first meeting as Federal Reserve chairman ended Wednesday with the Fed agreeing to leave interest rates unchanged and potentially raise them further. The meeting also confirmed that key language indicating a bias towards future cuts had been removed in a much shorter policy statement.
The Federal Open Market Committee unanimously voted to keep the benchmark overnight borrowing rate in the range of 3.5% to 3.75%. The federal funds rate has remained at that level since the central bank cut rates by three-quarters of a percentage point in late 2025.
Amid intrigue surrounding Warsh’s appointment to the helm of the central bank, the meeting followed the same pattern as other meetings this year on interest rates but was otherwise different.
missing dot
Fed officials, through their closely watched “dot plot” grid, reversed their previous outlook for rate cuts this year and signaled the possibility of rate hikes. However, one member, Warsh, did not participate in the economic forecast summary.
Mr. Warsh has criticized this forecasting tool and the Commission’s other forward guidance, including the SEP’s projections for unemployment, inflation, and gross domestic product.
Ahead of the meeting, Fed watchers suspected Mr. Warsh would not provide an outlook, and some predicted he would seek to end the function altogether. At a news conference after the decision, he declined to give an outlook and acknowledged that he was forming a task force to overhaul the central bank’s operations.
“I didn’t submit a dot to myself,” Warsh said. “That doesn’t help policy management. As I said in my opening statement, I think by the end of the year there will be a review of broader communications, including press conferences, dots, meetings, records, minutes, etc. This will be part of that. I’m not going to prejudge the outcome there, but I’m pretty open-minded about what the outcome will be.”
Based on 18 of 19 responses, the median forecast for the federal funds rate at the end of 2026 is 3.8%, up from the prior estimate of 3.4% in March, suggesting the committee expects at least one rate hike this year. Participants at the meeting were divided on the direction of interest rates this year, with eight expecting them to remain unchanged, one expecting a cut and nine expecting at least one rate hike.
The 2028 forecast was missing an additional dot.
short statement
During the press conference, Warsh acknowledged the change in the commission’s statement.
“It’s a little shorter, a little simpler, and doesn’t need the old wording,” he says. “That statement only represents the facts to the best of our ability.”
In addition to the interest rate decision, which was widely expected in financial markets, the FOMC’s post-meeting statement not only removed previous language seen as a nod to a future easing trend, but also put a knife to its remaining portions. Warsh criticized the Fed for over-communicating.
This week’s communiqué registered at just 130 words, compared to 341 words when released on April 29 after a recent conference. The statement only outlined the economic situation and then pledged to curb inflation.
“Economic activity is expanding at a steady pace, despite heightened uncertainty due in part to the conflict in the Middle East. Productivity growth and capital investment are solid,” the statement said. “Employment growth has kept pace with labor force growth, and the unemployment rate has remained largely unchanged.”
“Inflation remains elevated relative to the Committee’s target of 2%, reflecting in part the supply shock that has caused price increases in certain sectors, including energy. The Committee will deliver on price stability,” policymakers said.
The statement also said the Fed would maintain a policy of “rich foreign exchange reserves” in the banking system and suggested there were no immediate plans to reduce the Fed’s bond holdings on its $6.7 trillion balance sheet, as Mr. Warsh asserted.
The unanimous approval of the statement came after the wording of the so-called forward guidance drew three dissenting opinions from regional reserve bank presidents at the April meeting, who wanted to keep options open in both directions on the possibility of future rate hikes or cuts.
higher inflation expectations
Given the uncertainty surrounding interest rates, officials also adjusted their hints about where policy might go from here. The grid, which anonymously shows meeting participants’ interest rate forecasts, erased an earlier call for one rate cut this year and pushed back cuts to 2027 and 2028 as policymakers consider the durability of a spike in inflation caused by the Iran war.
The grid shows that the median forecast for funds rates by the end of the year is 3.8%, about 0.16 percentage points above current levels and suggesting that rate hikes are well within sight. We continued to forecast long-term fund interest rates at 3.1%.
Officials have changed their view on the economy, raising their 2026 inflation forecast to 3.6% overall and 3.3% in core excluding food and energy. At the time of the last update in March, members had expected the interest rate on both measures to be 2.7%. In addition, the forecast for gross domestic product (GDP) growth rate was slightly revised downward to 2.2%, down 0.2 percentage points from March, and the forecast for the unemployment rate was also lowered to 4.3%, down 0.1 percentage point from March.
The surge in inflation is troubling policymakers who are trained to avoid short-term supply shocks such as war-related energy surges.
Recent indicators of inflation have hit multi-year highs, with the consumer price index in May showing an annual inflation rate of 4.2%, although the core index, which excludes food and energy, was lower than the headline 2.9%. Inflation has been above the Fed’s 2% target for the past five years.
Warsh told reporters that the Fed is committed to bringing inflation down to 2%.
“The commitment to deliver is strong, unanimous and clear. I think this is an important message that we’ve missed for five years. We’re going to fix it,” Warsh said.
Mr. Warsh has made few public comments outside of his confirmation hearing and his May 22 swearing-in, but he has argued that supply shocks and inflation should generally be considered when formulating policy. He also argued that artificial intelligence will ultimately have a disinflationary impact on the economy, as increased productivity eases the cost of goods and services.
Still, the debate for lower interest rates is further complicated by a surprisingly resilient labor market. Nonfarm payroll growth again exceeded expectations in May, adding 172,000 jobs, while the Fed’s most closely watched unemployment rate, at 4.3%, was unchanged over the past year.
Prior to the decision, the market had not expected a rate cut in 2026 and had expected a quarter-point rate hike by the end of the year, according to CME Group’s FedWatch index. The decision and Warsh’s comments led traders to expect a rate hike as early as October.
Correction: Following the decision and Mr. Warsh’s comments, traders were expecting a rate hike as early as October. A previous version incorrectly stated the expected behavior.
