The Federal Reserve left its target interest rate unchanged at 3.5% to 3.75% for the fourth consecutive meeting, a unanimous decision in Kevin Warsh's first meeting as chairman of the Federal Open Market Committee (FOMC). This comes despite new quarterly projections showing many top officials now anticipate raising interest rates this year. The closely watched policy statement omitted earlier language about future rate moves, reflecting Warsh's desire to move away from providing forward guidance.
New projections reveal a hawkish pivot, with nine officials signaling support for a rate hike by the end of 2026. This is a significant shift from March, when no policymakers penciled in a hike and the committee as a whole forecast a rate cut. The median forecast for the Personal Consumption Expenditures (PCE) price index for 2026 was raised to 3.6%, up from 2.7% in March, and core PCE inflation, excluding volatile food and energy, is now expected to be 3.3%, also up from 2.7%. The median Federal Funds Rate projection for 2026 rose to 3.8% from 3.4%.
Warsh, appointed by President Trump, announced the establishment of five task forces to reform Fed operations and communications. These task forces will cover policy communication, balance sheet management, data systems construction, productivity, employment and the impact of AI, and the inflation framework. This includes a significant streamlining of the policy statement, which was reduced by more than half to approximately 130 words.
The market reacted to these developments with mixed signals. The S&P 500 initially sank after the statement release but recovered before falling again. The yield on the two-year Treasury note soared, reflecting expectations for higher rates. Stock prices fell sharply, and bond yields rose, while the dollar gained ground against a basket of currencies, with short-term interest-rate futures pricing in a higher chance of a rate hike by September.
