Fed Holds But Signals Hawkish; Warsh Downplays Forward Guidance
Fed Chair Warsh, after his first policy meeting, said restoring price stability is the top priority. The Fed held rates steady but signaled support for a rate hike this year, a clearly hawkish stance.
At the press conference, Warsh said: "Persistently high prices are a burden on Americans, but the past does not necessarily determine the future. Officials are clear and unanimous; the FOMC is committed to achieving price stability."
Meanwhile, Warsh downplayed the importance of his colleagues' latest rate projections. The dot plot showed 9 of 19 officials expect at least one 25-basis-point rate hike this year, with 6 expecting at least two hikes; 9 expect rates to remain unchanged or be cut.
Warsh said other officials are also not very confident in their projections, with many acknowledging high uncertainty about the economic outlook. When asked about the rate debate at this meeting, he described it as a "healthy internal debate."
The new chair, a long-time critic of forward guidance, also said he personally refused to submit a rate forecast.
The FOMC voted unanimously to keep the federal funds rate target range at 3.5% to 3.75%.
After the decision, 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 and Inflation Stance
In the post-meeting statement, officials said inflation remains elevated and reiterated commitment to price stability.
They continued to describe economic growth as "solid" and said productivity growth and capital investment are strong. The statement was more concise than previous ones, and given Warsh's promise to reform Fed communication, this brevity may signal future changes.
Warsh, when taking office last month, pledged to drive "institutional change" at the central bank. In his opening remarks, he announced multiple working groups to assess five areas of Fed operations and study possible reforms.
These working groups will study communication mechanisms, the balance sheet, the Fed's use 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.
He said: "Until we prove we have the ability and determination to achieve the 2% inflation target, I see no reason to revisit this issue."
Policymakers made several adjustments to the March economic projections: the median forecast for this year's inflation rose from 2.7% to 3.6%, and for 2026 core inflation from 2.7% to 3.3%.
Meanwhile, officials lowered the 2026 GDP growth median from 2.4% to 2.2%, and the 2026 year-end unemployment rate median from 4.4% to 4.3%.
Market Reaction and External Commentary
When asked about the Fed's decision to hold rates, Trump told reporters in France Wednesday: "It's fine, whatever."
When asked about potential rate hikes, Trump said: "Unbelievable. That would only drag down the US economy and is very abnormal." But he added: "Now we have a very good person over there, I'll respect his thoughts."
