Fed Holds Steady but Hawkish Signals Strengthen; Warsh Downplays Forward Guidance

Fed Chair Warsh said after his first policy meeting since taking office that restoring price stability will be the core task. This came after Fed officials decided to hold rates steady while signaling support for a rate hike this year.

Warsh said at a press conference that persistently high prices still burden American people, but the past does not necessarily determine the future, and the Federal Open Market Committee is committed to achieving price stability.

At the same time, Warsh downplayed the importance of his colleagues' latest rate projections. The dot plot showed that among 19 officials, 9 expect at least one 25-basis-point hike this year, with 6 expecting at least two hikes; another 9 expect rates to remain unchanged or be cut.

Warsh said other officials also lack strong conviction in their projections, with many acknowledging high uncertainty about the economic outlook. When asked about the rate debate at the meeting, he described it as a "healthy internal debate."

The new chair, a long-time critic of so-called forward guidance, also said he personally declined to submit a rate forecast.

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

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

FOMC Statement

The post-meeting statement showed officials see inflation remaining elevated and reaffirmed commitment to price stability.

They continued to describe economic growth as "solid." Officials also said productivity growth and capital investment are strong. The policy statement was more streamlined than previous ones, a concise style that may signal future changes given Warsh's earlier promise to reform Fed communication strategy.

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

These working groups will examine communication mechanisms, 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 would involve external experts and be supported by Fed staff.

In response to questions, he ruled out revisiting the 2% inflation target. He said there is no reason to revisit the issue until the Fed has re-proven its ability and determination to achieve the 2% target.

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

When asked about the Fed's decision to hold rates steady, Trump told reporters in France on Wednesday, "No problem, whatever." When asked about a potential rate hike, Trump said, "Unbelievable, that would only drag down the U.S. economy and is very abnormal," but added that the Fed now has a "very good person" and he would respect his views.