WASHINGTON — The Federal Reserve held its benchmark interest rate steady on Wednesday, with new Chairman Kevin Warsh signaling a more hawkish stance while announcing sweeping institutional reforms at his first policy meeting.
The Federal Open Market Committee (FOMC) voted unanimously to keep the federal funds rate target range at 3.50 percent to 3.75 percent, marking the fourth consecutive meeting without a rate change. The decision aligned with market expectations.
Dot Plot Shift
The central bank released its updated economic projections, showing a significant hawkish shift in officials’ rate expectations. Of the 18 Fed officials who submitted forecasts, nine now anticipate at least one rate increase in 2026, compared to previous projections that showed most officials favoring rate cuts.
The median forecast for the federal funds rate at the end of 2026 rose to 3.8 percent, up from the March projection of 3.4 percent. Notably, one official advocated for an aggressive 75-basis-point increase, according to the Summary of Economic Projections.
Meanwhile, inflation expectations climbed sharply. Officials now project headline PCE inflation to average 3.6 percent in 2026, up from the 2.7 percent forecast in March. Core inflation projections also saw upward revisions, reflecting persistent price pressures across the economy.
Growth Outlook
Economic growth expectations were revised downward amid persistent price pressures. The median GDP growth forecast for 2026 dropped to 2.2 percent from 2.4 percent, while the unemployment rate is expected to reach 4.3 percent by year-end.
In his first press conference as chairman, Warsh emphasized the Fed’s unwavering commitment to its 2 percent inflation target.
“The commitment to achieving our 2 percent inflation objective is firm, unanimous, and clear,” he stated. “The Federal Reserve has missed its inflation target for five years. We are now committed to correcting this.”
Reform Initiatives
In a move widely anticipated by monetary policy scholars, the Fed announced the establishment of five special working groups focused on improving communication mechanisms, managing its balance sheet, and enhancing data collection practices.
Reflecting Warsh’s long-standing critique of central bank verbosity, the policy statement was notably shortened to approximately 130 words, effectively eliminating much of the forward guidance that had characterized previous FOMC announcements.
Market participants responded quickly to the hawkish signals and structural shifts. Fed Funds futures and trading tools now show full pricing for a rate increase by October 2026, with expectations for two additional rate hikes by early next year.