Fed Holds Rates Steady; Warsh Downplays Forward Guidance, Signals Hawkish Stance

Federal Reserve Chairman Warsh, after his first policy meeting since taking office, said the central bank is committed to restoring price stability. Earlier, Fed officials unanimously decided to keep interest rates unchanged and signaled support for rate hikes this year.

At a press conference, Warsh said persistently high prices are a burden on Americans, but the past does not necessarily determine the future, and the Federal Open Market Committee (FOMC) will aim to achieve price stability with a clear and consistent stance.

Meanwhile, Warsh downplayed the importance of the latest rate projections. The dot plot showed that among 19 officials, 9 expect at least one 25-basis-point rate 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 were not very confident in their forecasts, with many acknowledging high uncertainty about the economic outlook. When asked about the debate over rates at this meeting, he said the committee had a "healthy internal debate."

The new chairman, a long-time critic of "forward guidance," said he himself refused to submit an interest rate forecast.

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

Following the decision, U.S. Treasuries were 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 Strikes Hawkish Tone

In the post-meeting statement, officials said inflation remains elevated and reiterated their commitment to achieving price stability.

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

When he took office last month, Warsh pledged to push for "institutional change" at the central bank. In his opening remarks, he announced the establishment of multiple working groups to evaluate five areas of Fed operations and study potential reforms.

The working groups will separately 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 involve external experts and be supported by Fed staff.

In response to a question, he ruled out the possibility of revisiting the 2% inflation target. He said, "Before we prove again that 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 economic forecasts released in March: the median forecast for this year's inflation rate was raised from 2.7% to 3.6%, and the 2026 core inflation forecast was raised from 2.7% to 3.3%.

Meanwhile, officials lowered the median 2026 economic growth forecast from 2.4% in March to 2.2%, and the median unemployment rate forecast for end-2026 was lowered 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 unbelievable. Doing so will only drag down the U.S. economy, and it's very abnormal," though he added, "Now we have a very good person over there, and I will respect his views."