Fed Holds Steady but Sends Hawkish Signals; Warsh Downplays Forward Guidance
Fed Chair Warsh said after his first policy meeting that he will prioritize restoring price stability. Earlier, Fed officials held rates steady and signaled support for rate hikes this year.
Warsh told a press conference that persistently high prices continue to burden Americans, but the past does not necessarily determine the future, and the FOMC is committed to achieving price stability.
Meanwhile, Warsh downplayed the importance of his colleagues' latest rate projections. The dot plot showed that among the 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 were also not very confident in their projections, and many acknowledged high uncertainty about the economic outlook. When asked about the rate debate at this meeting, he described the committee's discussions as a 'healthy internal debate.'
The new chair, a long-time critic of 'forward guidance,' said he personally declined to submit his own rate projection.
The FOMC voted unanimously on Wednesday to keep the target range for the federal funds rate at 3.5% to 3.75%.
After the decision, US Treasuries sold off, the dollar rose, and stocks fell. Following Warsh's press conference, traders saw a 100% probability of a rate hike by October.
FOMC Statement More Concise
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.' Officials also said productivity growth and capital investment are robust. The policy statement was much more concise than previous ones, widely seen as potentially signaling a change in future communication style.
Warsh, upon taking office last month, promised to push for 'institutional change' at the central bank. In his 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 research 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 will include outside experts and will 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 it until the Fed has re-proven its ability and determination to achieve it.
Policymakers made several adjustments to the March economic projections: the median forecast for headline inflation this year was raised to 3.6% from 2.7%, and the 2026 core inflation forecast to 3.3% from 2.7%. Meanwhile, officials cut the median 2026 GDP growth projection to 2.2% from 2.4% in March, and the median year-end 2026 unemployment rate projection to 4.3% from 4.4%.
When asked about the Fed's decision to hold rates steady, Trump told reporters in France on Wednesday, 'That's fine, whatever.' When asked about potential rate hikes, Trump said, 'Unbelievable,' and said doing so would only drag down the US economy, but added that there is now a 'very good person' and he would respect his thoughts.
