Fed holds steady with hawkish tilt; insights into Warsh's downplaying of forward guidance

Special: Fed holds rates, streamlines statement to remove easing bias

Fed Chair Warsh pledged to restore price stability after his first policy meeting, after Fed officials held rates steady and signaled support for rate hikes this year.

"Persistently high prices are a burden on the American people, but the past does not necessarily determine the future. Officials are clear and united; the FOMC is committed to price stability," Warsh said at a press conference.

At the same time, Warsh downplayed the importance of his colleagues' latest rate projections. The dot plot showed 9 of 19 officials 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.

"Other officials are not very confident in their projections either, and many acknowledge high uncertainty about the economic outlook," Warsh said. When asked about the rate debate at the meeting, Warsh said the Committee had a "healthy internal debate."

The new chair, a long-time critic of so-called forward guidance, said he personally refused to submit a rate projection.

The FOMC voted unanimously to hold the federal funds rate target range at 3.5% to 3.75%.

Treasuries sold off, the dollar rose, and stocks fell after the decision. After Warsh's press conference, traders saw a 100% probability of a rate hike by October.

FOMC statement

In the post-meeting statement, officials said inflation remains elevated and reiterated the commitment to price stability.

They continued to describe economic growth as "solid." Officials also said productivity growth and capital investment are strong. The policy statement was more streamlined than previous ones. Given Warsh's promise to reform the Fed's communication strategy, this brevity may signal a future change.

Warsh, when he took office last month, promised to push for "institutional change" at the central bank. In his opening remarks, he announced the formation of working groups to assess five areas of Fed operations and study possible reforms.

These working groups will study 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 these groups would include outside experts and be supported by Fed staff.

In response to a question, he ruled out revisiting the 2% inflation target.

"Before we re-prove our ability and determination to achieve the 2% inflation target, I see no reason to discuss this issue," he said.

Policymakers made several adjustments to the March economic projections, raising the median 2026 inflation forecast from 2.7% to 3.6%, and the core inflation forecast from 2.7% to 3.3%.

Meanwhile, officials lowered the median 2026 GDP growth forecast from 2.4% in March to 2.2%. The median 2026 unemployment rate forecast was lowered from 4.4% to 4.3%.

Asked about the Fed's decision to hold rates, Trump told reporters in France on Wednesday, "It's fine, whatever."

When asked about potential rate hikes, Trump said: "Unbelievable. That would only drag down the US economy and is very abnormal." But he added: "Now we have a very good person over there, I'll respect his views."