The first meeting chaired by Federal Reserve Chair Kevin Warsh concluded on Wednesday. The decision was to keep interest rates unchanged, removing key language that had previously signaled a future inclination toward rate cuts, while also significantly shortening the policy statement.
The Federal Open Market Committee (FOMC) voted unanimously to maintain the benchmark overnight borrowing rate in the 3.5% to 3.75% range. The federal funds rate has remained at this level since the central bank cut rates by 0.75 percentage points in the latter half of 2025.
Despite market curiosity and speculation surrounding Warsh's leadership, the meeting continued the established pattern for the year regarding the rate decision but diverged in other respects.
Officials used the closely watched "dot plot" to withdraw expectations for rate cuts this year, signaling that while a rate hike is possible, it is not a certainty. However, the dot plot was missing one member's forecast, leading market observers to suspect Warsh did not submit his projections.
An explanatory note accompanying the forecast materials indicated that 18 out of 19 participants submitted interest rate and economic projections. Since the dot plot is an anonymous compilation of expectations, it cannot be confirmed whether the missing forecast was indeed Warsh's. However, prior to the meeting, market observers widely expected Warsh would not participate in the Summary of Economic Projections (SEP). Some suspected he might attempt to eliminate the mechanism entirely. Additionally, one dot was missing from the 2028 projections.
Warsh has been a critic of the dot plot forecasting tool, along with other forms of forward guidance from the Committee, including SEP projections for unemployment, inflation, and gross domestic product (GDP).
Beyond the widely anticipated rate decision, the FOMC's post-meeting statement not only excised the previous language hinting at a future easing bias but also substantially pared down the remainder of the text.
This week's statement contained a mere 130 words, compared to the 341-word statement released after the previous meeting on April 29. It offered only a brief summary of economic conditions before pledging to contain inflation.
The statement noted: "Economic activity is expanding at a solid pace, despite some uncertainty, partly attributable to the conflict in the Middle East. Productivity growth and capital investment have been strong. Job gains are keeping pace with labor force growth, and the unemployment rate has changed little."
The Committee added: "Inflation remains above the Committee's 2 percent objective, partly due to supply shocks that have boosted prices in certain areas, including energy. The Committee is committed to achieving price stability."
The statement also indicated the Fed would maintain its policy of keeping "ample reserves" in the banking system, suggesting no immediate plans to reduce the central bank's $6.7 trillion balance sheet of bond holdings, despite advocacy for such a move by Warsh.
Previously, at the April meeting, three dissenting votes were cast against so-called "forward guidance" language by regional reserve bank presidents who wished to preserve the option for future rate hikes or cuts. This latest statement was approved unanimously.
Amid uncertainty about the interest rate outlook, officials also adjusted their guidance on future policy direction. The dot plot, which anonymously displays participants' rate expectations, erased the prior expectation for one rate cut this year and pushed any potential cuts further out to 2027 and 2028, as policymakers assess the persistence of an inflation surge triggered by the war involving Iran.
The median projection in the dot plot for the federal funds rate at year-end is 3.8%—approximately 0.16 percentage points above the current level, indicating a rate hike is fully under consideration. Officials continue to project a longer-run federal funds rate of 3.1%.
Officials revised their view of the economy, raising their projection for overall 2026 inflation to 3.6% and for core inflation (excluding food and energy) to 3.3%. In the previous update in March, Committee members had projected both measures at 2.7%. They also slightly lowered their GDP growth projection to 2.2%, down 0.2 percentage points from March, and lowered their unemployment projection to 4.3%, a 0.1 percentage point decrease.
The inflation surge has placed policymakers in a difficult position, as traditional policy training instructs them to look through short-term supply shocks, such as war-related energy price spikes.
Recent inflation metrics have reached multi-year highs, with the May Consumer Price Index (CPI) showing an annualized inflation rate of 4.2%, although the core measure excluding food and energy was lower at 2.9%. Over the past five years, inflation has consistently run above the Fed's 2% target.
Although Warsh has offered little public commentary outside his confirmation hearing prior to being sworn in as Chair on May 22, he has long advocated that policymakers should generally look through supply-shock inflation. He has also maintained that artificial intelligence will ultimately have a deflationary impact on the economy, as productivity gains help lower the cost of goods and services.
Nevertheless, an unexpectedly robust labor market has complicated the rationale for rate cuts. Nonfarm payrolls again exceeded expectations in May, adding 172,000 jobs, while the unemployment rate, the metric the Fed watches most closely, has remained unchanged at 4.3% over the past year.
Market pricing aligns with the FOMC's expectations. According to the CME Group's FedWatch tool, markets are not pricing in any rate cuts for 2026 and are anticipating a 25-basis-point rate hike by the end of the year.
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