Fed Holds Rates Steady, Warsh Downplays Forward Guidance, Emphasizes Inflation Fight

Fed Chair Warsh, after his first policy meeting, said restoring price stability would be the core mission. Earlier, Fed officials held rates steady and signaled support for a rate hike this year.

"Persistently high prices are a burden on Americans, 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.

Meanwhile, 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.

Warsh said, "Other officials are also not very confident about their forecasts, and many acknowledge high uncertainty about the economic outlook." Asked about the interest rate debate at the meeting, Warsh said the committee had a 'healthy internal debate.'

The new chair, a longtime critic of so-called 'forward guidance,' said he himself declined to submit a rate projection.

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

Following the decision, US Treasuries sold off, the dollar rose, and stocks fell. 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 Fed communication, this succinct style may signal a future shift.

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

These working groups will examine communication mechanisms, the balance sheet, the Fed's 'use and reliance on existing data sources,' productivity and employment, and the central bank's 'inflation framework.' Warsh said the groups will include external experts and be supported by Fed staff.

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

"Before we prove to ourselves that we have the ability and determination to achieve the 2% inflation target, I see no reason to revisit this issue," he said.

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

At the same time, officials lowered the median 2026 GDP growth forecast from 2.4% in March to 2.2%. Their median 2026 year-end unemployment rate forecast was trimmed from 4.4% to 4.3%.

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

Responding to a question about potential rate hikes, Trump said: "Unbelievable. This will only drag down the US economy, and it's very abnormal." He added, "Now we have a very good person over there, and I will respect his views."