WASHINGTON – Kevin Warsh’s first meeting as Federal Reserve chairman concluded Wednesday with no change in interest rates and a nod to possible hikes ahead. The meeting also saw the removal of key language indicating a bias toward future cuts within 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.
A missing dot
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. However, the Summary of Economic Projections missed the participation of one member: Warsh.
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 SEP.
Heading into the meeting, Fed watchers had suspected Warsh wouldn’t submit his outlook, and some anticipated he might look to end the feature altogether. He confirmed at a news conference following the decision that he had declined to share a forecast and is forming task forces to overhaul major Fed operations.
“I did not submit a dot for me,” Warsh said. “It’s not helpful in the conduct of policy. I suspect by year-end, as I mentioned in my opening statements, there’ll be a review about communication broadly, press conferences, dots, meetings, and the like, transcripts, minutes. This will be part of that. I don’t want to prejudge the outcomes there, but I’m pretty open-minded about what they could be.”
Based on the 18 of 19 possible responses, the median estimate for the fed funds rate at the end 2026 is now 3.8%, up from 3.4% in the prior projections from March and signaling the committee sees at least one rate hike as necessary this year. Meeting participants were split on the path for rates this year, with eight expecting no change, one seeing a cut and nine anticipating at least one hike.
An additional dot was missing for 2028 projections.
A shorter statement
During the news conference, Warsh acknowledged the changes to the committee’s statement.
“It’s a bit shorter, a bit simpler and it dispenses with some older language,” he said. “That statement just gives you the facts, as best we can judge it.”
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 it. Warsh has criticized the Fed for overcommunicating.
This week’s communique checked in at just 130 words, compared with 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 policymakers said.
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.
Higher inflation forecast
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 multiyear 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.
Warsh told reporters that the Fed is committed to reducing inflation to 2%.
“The commitment to deliver is strong, unanimous, and unambiguous, and that’s I think an important message we’ve missed for five years, and we’re going to fix that,” Warsh said.
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 for 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.
Ahead of the decision, the market didn’t anticipate any cuts in 2026 and a quarter-point hike was expected by the end of the year, according to the CME Group’s FedWatch gauge. In the wake of the decision and Warsh’s remarks, traders were now anticipating a hike could come as early as October.
Correction: In the wake of the decision and Warsh’s remarks, traders were now anticipating a hike could come as early as October. An earlier version misstated the expected move.
