Fed Holds Steady but Sends Hawkish Signal; Warsh Downplays Forward Guidance

After his first policy meeting as Fed Chair, Kevin Warsh said the central bank will make restoring price stability its top priority. Earlier, the Fed held rates steady and signaled support for a rate hike this year.

Warsh said at a press conference that persistently high prices are burdening Americans, but the past does not necessarily determine the future. The FOMC is committed to achieving price stability.

At the same time, Warsh downplayed the importance of the latest rate projections. The dot plot showed 9 of 19 officials expect at least one rate hike this year, 6 expect at least two hikes; another 9 see rates unchanged or a cut.

Warsh said other officials are also not very confident in their projections, with many acknowledging high uncertainty in the economic outlook. He also described the rate debate at this meeting as a "healthy internal debate."

The FOMC voted unanimously Wednesday to maintain the federal funds rate target range at 3.5% to 3.75%.

Following the decision, U.S. Treasuries sold off, the dollar rose, and stocks fell. After Warsh's press conference, traders saw a 100% probability of a rate hike by October.

FOMC Statement

The post-meeting statement noted that inflation remains elevated, and officials reiterated their goal of achieving price stability.

They continued to describe economic growth as "solid" and mentioned strong productivity growth and capital investment. The policy statement was more concise than previous ones, seen by some as signaling a shift in future communication.

Warsh, who took office last month, pledged to drive "institutional change" at the central bank. In his opening remarks, he announced the formation of several working groups to evaluate five areas of the Fed's operations and study possible reforms.

These working groups will separately study communication, 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 the groups will include external experts and be supported by Fed staff.

In response to questions, he ruled out revisiting the 2% inflation target.

"Until we demonstrate our ability and determination to achieve the 2% inflation target again, I see no reason to reopen that discussion," Warsh said.

Policymakers made several adjustments to the economic projections released in March: the median forecast for inflation 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 GDP growth forecast from 2.4% in March to 2.2%, and lowered the median year-end 2026 unemployment rate forecast from 4.4% to 4.3%.

When asked about the Fed's decision to hold rates steady, Trump told reporters in France on Wednesday: "It's fine, whatever."

When asked about potential rate hikes, Trump said: "It's incredible. It would only drag down the U.S. economy and is very unusual." However, he added: "Now we have a very good person over there, and I'll respect his views."