Fed holds rates: Warsh downplays forward guidance, hawkish signals strengthen
Fed Chair Warsh said after his first policy meeting that the central bank is committed to restoring price stability. This followed a unanimous decision to hold rates unchanged and signal support for a rate hike this year.
At the press conference, Warsh said persistently high prices burden Americans, but the past does not necessarily dictate the future. The FOMC aims for price stability.
Meanwhile, Warsh downplayed the importance of his colleagues' latest rate projections. The dot plot showed 9 of 19 officials expect at least one 25-bp rate hike this year, with 6 expecting at least two; 9 expect rates to hold or cut.
Warsh said other officials were not very confident in their projections either, with many acknowledging high uncertainty in the economic outlook. He described the rate debate at this meeting as a "healthy internal debate."
The new chair, a long-time critic of forward guidance, said he himself refused to submit a rate projection.
The FOMC voted unanimously to keep the federal funds rate target range at 3.5% to 3.75%.
After the decision, 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
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 robust. The policy statement was more streamlined than recent ones, widely seen as a possible signal of changes in future communication.
Warsh, upon taking office last month, pledged 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.
These groups will respectively study communication mechanisms, 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 external experts will participate, supported by Fed staff.
In response to questions, he ruled out revisiting the 2% inflation target. He said he sees no reason to discuss it again before proving the ability and determination to achieve it.
Policymakers made several adjustments to the March economic forecasts, raising the median 2026 inflation forecast from 2.7% to 3.6%, and the 2026 core inflation forecast from 2.7% to 3.3%. Meanwhile, they lowered the 2026 GDP growth median from 2.4% to 2.2%, and the 2026 unemployment rate median from 4.4% to 4.3%.
Asked about the Fed's decision to hold rates, Trump told reporters in France on Wednesday, "It's fine, whatever." When asked about a potential rate hike, Trump said it would only drag down the US economy and would be very unusual. But he added that the Fed now has a very good person and he will respect his views.
