Fed Chair Warsh Debut: Downplays Dot Plot, Sticks to 2% Inflation Target
Beijing time June 18, 2:00 AM, the Fed announced it would keep the target range for the federal funds rate at 3.5% to 3.75%, the fourth straight hold this year, in line with market expectations.
The post-meeting statement said inflation remains elevated, the Fed reiterated it will achieve price stability, and described economic growth as "solid." Officials also noted productivity growth and capital investment are strong. The policy statement was more concise than before, which the market sees as a possible sign of changes in Fed communication.
Policymakers also made adjustments to the March SEP: the median 2026 headline inflation forecast was raised to 3.6% from 2.7%, and the 2026 core inflation forecast to 3.3% from 2.7%. Meanwhile, the median 2026 GDP growth forecast was lowered to 2.2% from 2.4%, and the 2026 year-end unemployment rate forecast to 4.3% from 4.4%.
Fed Chair Warsh said after his first policy meeting that price stability will be restored. He stressed that persistently high prices are a burden on Americans, but the FOMC will be committed to achieving price stability.
At the press conference, Warsh downplayed the importance of the latest rate projections. The dot plot showed 9 of 19 officials expect at least one rate hike this year, with 6 expecting at least two; another 9 expect rates unchanged or a cut. Warsh said many officials are not very confident in their forecasts and the economic outlook remains highly uncertain.
The new chair, who has long criticized forward guidance, also said he personally refused to submit rate projections. He believes the dot plot is of limited help in implementing policy and the FOMC does not see itself bound by rate forecasts.
Among the 18 officials who submitted dot plots, one saw a cumulative 75 basis point hike over the rest of 2026, five saw 50 basis points, three saw 25 basis points, eight saw rates unchanged, and one saw a 25 basis point cut.
Key Points from Fed Chair Warsh's First Press Conference
1. Communication Framework Overhaul: Abandon Forward Guidance, Downplay Dot Plot
Warsh made clear the Fed has abandoned forward guidance, believing the tool is no longer suitable for the current environment. He also downplayed the reference value of the dot plot and said it would be valuable to adjust press conference communication going forward. It would not be surprising if a new communication framework is announced by year-end.
2. Inflation Target and Response: Stick to 2% Target, Prevent Second-Round Effects
Warsh said the 2% inflation target is the Fed's long-term goal and there is no reason to reassess it until it is achieved. He stressed the Fed cannot significantly influence supply shocks like energy; its core task is to prevent "second-round price effects." He also noted that most data the Fed relies on comes from outdated surveys, which is another area needing reform.
3. Institutional Reform: Establish Five Special Task Forces
To address current challenges, Warsh announced the creation of five special task forces in monetary policy, with most work expected to be completed by year-end. The communication task force will advise on adjustments to the SEP; the balance sheet task force will assess appropriate reserve responsibilities; the data sources task force will address data lag issues; the productivity task force will specifically examine the impact of AI on productivity; and the employment task force will focus on labor market dynamics. An inflation task force will also specifically examine inflation drivers.
4. Independence and External Relations
Warsh stressed the Fed will never cede decision-making to any outsider. He revealed he has had three breakfast meetings with Treasury Secretary Bessent and has met with the Fed's inspector general, who will release a report this summer on renovations to the Fed building. He also said markets perform best when they react to real-time data, and market prices themselves may be the most important reference information.
Market Reaction
At the close on June 18, US stocks fell, with the Dow down about 500 points, tech heavyweights leading declines, and Treasury yields surging. Several Fed officials hinted at possible rate hikes this year to curb inflation, leaving investors uncertain about the monetary policy path. The Dow fell 507.12 points, or 0.98%, to 51,492.55; the Nasdaq fell 354.68 points, or 1.34%, to 26,021.65; the S&P 500 fell 91.25 points, or 1.21%, to 7,420.
Oil prices edged up after two days of heavy losses, but expectations of an imminent interim peace deal between the US and Iran continued to pressure oil prices. WTI crude rose 1% to settle below $77 a barrel, while Brent crude settled below $80.
The dollar index posted its biggest gain in three months as the Fed held rates as expected but the dot plot sent hawkish signals. USD/JPY rose 0.14% to 160.65 yen, the weakest since July 2024, potentially triggering intervention by Japanese authorities; GBP/USD fell 0.99% to $1.3293, EUR/USD fell 0.92% to $1.1501.
In US bond markets, short-term Treasuries prices fell sharply, with the yield curve flattening sharply. The 2-year yield briefly rose 15 bps to 4.20%, the highest since February 2025, reflecting a repricing of rate hike expectations.
Institutional Views
Natixis North America Chief US Economist Christopher Hodge said this was a hawkish statement: rates unchanged, the easing bias removed, no dissents, and a clearly streamlined statement, all conveying a stronger price stability signal.
Goldman Sachs Asset Management analyst Kay Haigh said the decision shows the Fed's hawkish turn is not just about energy prices. Despite recent oil price declines, half of FOMC members expect a rate hike as early as this year, reflecting strong labor market and inflation data. Their base case remains that the Fed can barely avoid a rate hike, but future inflation data will carry significant weight.
"Fed whisperer" Nick Timiraos pointed out that this dot plot is clearly more hawkish, and the policy statement was thoroughly revised from start to finish with a noticeable reduction in length. Overall, the Fed's communication framework has changed significantly, and market expectations for the rate path may be recalibrated.
