Fed Holds Rates, Warsh Downplays Forward Guidance, Emphasizes Fighting Inflation
Fed Chair Warsh said after his first policy meeting that the central bank will restore price stability. Earlier, Fed officials held rates steady and signaled support for a rate hike this year.
Warsh said at the press conference that persistently high prices are a burden on Americans, but the past does not necessarily determine the future, and the FOMC will be committed to achieving price stability.
At the same time, Warsh downplayed the importance of colleagues' latest rate projections. The dot plot showed that 9 of 19 officials expect at least one 25-basis-point rate hike this year, with 6 expecting at least two; another 9 expect rates to remain unchanged or to be cut.
Warsh said other officials are not very confident in their forecasts either, and many acknowledged high uncertainty about the economic outlook. When asked about the rate debate at this meeting, he said the committee had a "healthy internal debate."
The new chair, who has long criticized so-called forward guidance, said he personally declined to submit rate projections.
The FOMC voted unanimously Wednesday to keep the target range for the federal funds rate at 3.5% to 3.75%.
Following the decision, US Treasuries were 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 and Economic Projections
In the post-meeting statement, officials said inflation remains elevated and reiterated their 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 concise style may signal a future change.
Warsh, who took office last month, had promised to drive "institutional change" at the central bank. In his opening remarks, he announced the formation of several working groups to assess five areas of Fed operations and study possible reforms.
The working groups will study communications, 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 the groups would involve external experts and be supported by Fed staff.
In answering questions, he ruled out revisiting the 2% inflation target. He said: "Before we prove we have the ability and determination to achieve the 2% target, I see no reason to revisit this issue."
Policymakers made several adjustments to the economic projections from March, raising the median forecast for this year's inflation to 3.6% from 2.7%, and raising the 2026 core inflation forecast to 3.3% from 2.7%.
At the same time, officials reduced the median 2026 GDP growth forecast to 2.2% from 2.4% in March. The median forecast for the 2026 year-end unemployment rate was lowered to 4.3% from 4.4%.
Trump Responds to Fed Decision
When asked about the Fed's decision to hold rates, Trump told reporters in France Wednesday: "It's okay, 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 will respect his views."
