Federal Reserve Chair Kevin Warsh indicated that the inflation outlook has improved, noting that risks are now more balanced than a few months ago. However, he declined to specify whether he believed the Federal Open Market Committee should proceed with an interest-rate hike at its upcoming meeting. Warsh underscored that economic data would guide future policy decisions, stating that a decision to raise or lower rates would not be ruled out.
During his first press conference as Fed Chair, Warsh announced that the FOMC unanimously voted to keep the federal funds rate target range unchanged at 3.5%-3.75%. He revealed that the summary of economic projections (SEP) showed 9 out of 18 policymakers anticipated at least one rate hike by the end of the year, with 6 of those expecting multiple quarter-point increases. Conversely, 8 policymakers foresaw no change, and one projected a rate cut. Warsh notably did not submit his own "dot" for the SEP, explaining it was not helpful for his conduct of policy.
The Fed's inflation projections in the SEP increased, with headline PCE inflation expected to reach 3.6% by the end of 2026, up from 2.7% in March, and core PCE inflation rising to 3.3% from 2.7%. The median projection for GDP growth this year softened to 2.2% from 2.4%, while the unemployment rate forecast dropped to 4.3% from 4.4%.
Warsh also announced significant changes to the Fed's communication strategy, including the elimination of "forward guidance" from policy statements and a review of the "dot plot" and other communication methods. He emphasized the Fed's unwavering commitment to achieving its 2% inflation target, stating that inflation is a "choice" and the committee is "unambiguously and unanimously" dedicated to delivering price stability. Additionally, he formed five task forces to review areas such as the balance sheet, communication, data sources, productivity and jobs, and inflation frameworks.
