Fed Chair Warsh's debut: Downplays dot plot, sticks to 2% inflation target

On June 18 at 2:00 AM Beijing time, the Fed kept the federal funds rate target range unchanged at 3.5% to 3.75%, in line with market expectations and marking the fourth consecutive hold this year.

The post-meeting statement noted that inflation remains elevated, the Fed will continue to work toward price stability, and described economic growth as "solid." Officials also mentioned that productivity growth and capital investment are strong. Compared to previous statements, this one was more streamlined, widely seen as a sign of Warsh's push for communication reform at the Fed.

In the latest economic projections, policymakers raised 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%. Meanwhile, the median 2026 growth forecast was cut from 2.4% to 2.2%, and the year-end 2026 unemployment rate forecast was lowered from 4.4% to 4.3%.

Fed releases FOMC statement holding rates steady (click to view original)

In his first policy meeting as chair, Fed Chair Warsh pledged at the press conference to restore price stability. Earlier, Fed officials held rates steady and signaled support for a rate hike this year.

Warsh said: "Persistently high prices are a burden on Americans, but the past does not necessarily determine the future. Officials are clear and united, and the FOMC is committed to price stability."

He also downplayed the importance of his colleagues' latest rate forecasts. The dot plot shows 9 of 19 officials expect at least one rate hike this year, with 6 expecting at least two; another 9 expect rates to remain unchanged or be cut.

Warsh added that other officials are not very confident in their forecasts either, with many acknowledging high uncertainty in the economic outlook. Describing the rate debate at the meeting, he called it a "healthy internal debate."

The new chair, a long-time critic of "forward guidance," explicitly said he personally refused to submit a rate forecast.

On the dot plot, 18 of 19 officials submitted forecasts. Among the 18, one expects cumulative rate hikes of 75 bps for the rest of 2026, five expect 50 bps, three expect 25 bps, eight expect rates unchanged, and one expects cumulative cuts of 25 bps.

Key takeaways: Abandon forward guidance, downplay dot plot

This is the core signal of change from the press conference. Warsh said the Fed has abandoned forward guidance, deeming the tool no longer appropriate for the current situation, and therefore cannot provide clear guidance on future specific actions.

He also believes the dot plot is of limited help in executing policy, and the FOMC does not consider itself bound by rate forecasts. He himself did not provide a dot plot forecast.

On communication methods, Warsh thinks press conferences are still useful, but adjustments are needed in the future. It would not be surprising if a new communication framework is disclosed before year-end.

Inflation target: Stick to 2% bottom line, guard against second-round effects

Warsh emphasized that the 2% inflation target is the Fed's long-term goal, and there is no reason to reassess it until it is achieved. The Fed is committed to resolving the five-year deviation from inflation target.

He said the Fed cannot significantly affect supply shocks like energy, and its core job is to ensure no "second-round price effects" occur. He also noted that most data the Fed currently relies on come from outdated survey methods, which is another focus of future reform.

Institutional reform: Establish five special task forces

To address current challenges, Warsh announced the appointment of five task forces covering monetary policy areas, with most work expected to be completed by year-end.

The communication task force will advise on adjustments to the Summary of Economic Projections (SEP); the balance sheet task force will assess appropriate reserve duties; the data source task force will address data lags; the productivity task force will specifically examine AI's impact on productivity; and the employment task force will focus on labor market dynamics. An inflation task force will specifically inspect inflation drivers.

Independence and external relations: Strengthen internal governance

Warsh stressed that the Fed will never delegate decision-making to any outsider. He also revealed that he has had three breakfasts with US Treasury Secretary Bessent so far.

Additionally, he said he has met with the Fed's Inspector General, who will release a report on the Fed building renovation this summer. He also emphasized that market reactions to real-time data are usually most effective, and market prices themselves may be the most important reference information.

Market reaction: Stocks, dollar, and bonds move simultaneously

At the close on June 18, US stocks fell, with the Dow dropping about 500 points. Tech heavyweights led declines, and Treasury yields surged, reflecting rising uncertainty about the monetary policy path.

The Dow fell 507.12 points, or 0.98%, to 51,492.55; the Nasdaq fell 354.68 points, or 1.34%, to 26,021.65; the S&P 500 fell 91.25 points, or 1.21%, to 7,420.

In oil, WTI crude rose 1% to settle below $77 per barrel, Brent crude settled below $80. Markets await further updates on the interim peace agreement between the US and Iran.

In forex, the dollar index posted its biggest gain in three months. USD/JPY rose 0.14% to 160.65; GBP/USD fell 0.99% to 1.3293; EUR/USD fell 0.92% to 1.1501.

In bonds, short-term US Treasury prices plunged, with the 2-year yield spiking 15 bps to 4.20%, the highest since February 2025, flattening the yield curve.

Institutional views: Hawkish signal clear, inflation remains key variable

Natixis believes the meeting was generally hawkish: rates held steady, the easing bias removed, no dissenting votes, the statement significantly streamlined, and ending with a commitment to price stability.

Goldman Sachs Asset Management analysts noted that the Fed's recent hawkish shift is not solely driven by energy prices. Despite falling oil, half of officials still expect the earliest rate hike this year, reflecting strong labor and inflation data. Future inflation data will carry high weight.

"Fed whisperer" Nick Timiraos also said the dot plot sent a clear hawkish signal, the policy statement was almost entirely revised and shortened, and market expectations for the rate path may be recalibrated accordingly.