Fed stays put but sends hawkish signal; Warsh downplays forward guidance
At the end of his first policy meeting as Fed chair, Warsh said restoring price stability would be his top priority. Earlier, Fed officials decided to keep rates unchanged while signaling support for a hike later this year.
Warsh said at the press conference that persistently high prices are still a burden on Americans, but the past does not necessarily define the future. He said the Federal Open Market Committee (FOMC) was clear and united in its commitment to price stability.
Warsh clearly downplayed the importance of the latest rate projections. The dot plot showed that 9 of the 19 officials expect at least one 25-basis-point hike this year, another 6 expect at least two hikes, while 9 others expect rates to stay unchanged or be cut.
Warsh said other officials were not very certain about those forecasts either, and many acknowledged a high degree of uncertainty about the economic outlook. Speaking about policy differences at the meeting, he described it as a “healthy internal debate.”
The new chair, a longtime critic of so-called forward guidance, also said he himself refused to submit a rate forecast.
The FOMC voted unanimously on Wednesday to keep the federal funds target range at 3.5% to 3.75%.
After the decision, U.S. Treasurys were sold off, the dollar rose, and stocks fell. After Warsh's press conference ended, traders priced in a 100% chance of a hike by October.
FOMC statement shorter, inflation still seen as elevated
In the post-meeting statement, officials said inflation remained elevated and reaffirmed their commitment to price stability.
They continued to describe economic growth as “solid” and said productivity growth and capital investment were strong. The policy statement was shorter than in previous meetings, which some saw as a sign that the Fed's communication style may be changing.
When Warsh took office last month, he promised to pursue “institutional reform” at the central bank. In his opening remarks, he announced the creation of multiple task forces to review five areas of Fed operations and study possible reforms.
Those task forces will examine communications, 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 outside experts and be supported by Fed staff.
In response to questions, he ruled out revisiting the 2% inflation target. He said there was no reason to reopen the issue until the Fed proves it can and will achieve its 2% goal.
Policymakers made several changes to the March economic projections, raising the median inflation forecast for this year from 2.7% to 3.6% and the 2026 core inflation forecast from 2.7% to 3.3%.
At the same time, officials lowered the median 2026 growth forecast from 2.4% in March to 2.2%, and trimmed the median forecast for the unemployment rate at the end of 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, “It's fine either way.” On the possibility of a hike, Trump said it would only drag on the U.S. economy and would be highly unusual. But he added that the Fed now has a very good person, and he would respect that person's views.
