Fed keeps rates unchanged with a hawkish tone; Warsh downplays forward guidance, shaping commodity market expectations

Special report: Fed keeps rates unchanged, trims statement to remove dovish bias

After the first policy meeting of his tenure, Fed Chair Warsh pledged to restore price stability. Earlier, Fed officials left rates unchanged and signaled support for a hike this year.

Warsh said at the press conference: "Persistently high prices are a burden on Americans, but the past does not necessarily determine the future. Officials are clear and united, and the Federal Open Market Committee (FOMC) will remain committed to price stability."

At the same time, Warsh downplayed the importance of his colleagues' latest rate forecasts. The dot plot showed that 9 of the 19 officials expected at least one 25-basis-point hike this year, with 6 expecting at least two hikes. Another 9 expected rates to remain unchanged or to be cut.

Warsh said, "Other officials are not very confident in their own forecasts either, and many acknowledge that the economic outlook is highly uncertain." When asked about the rate debate at this meeting, Warsh said the committee had engaged in a "healthy internal debate."

The new chair, a long-time critic of so-called "forward guidance," said he himself declined to submit a rate forecast.

The FOMC voted unanimously on Wednesday to keep the federal funds target range at 3.5% to 3.75%.

After the decision was announced, U.S. Treasuries were sold off, the dollar rose, and stocks fell. By the time Warsh's press conference ended, traders were pricing a 100% chance 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 were strong. The statement was much shorter than previous policy statements, a concise style that may signal a future shift given Warsh's promise to reform the Fed's communication strategy.

When Warsh took office last month, he promised to push for "institutional change" at the central bank. In his opening remarks, he announced the creation of several working groups to review five areas of Fed operations and explore possible reforms.

The working groups will examine communication, 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 will include outside experts and be supported by Fed staff.

In response to questions, he ruled out revisiting the 2% inflation target.

He said: "Until we prove again that we are capable of and determined to achieve 2% inflation, I don't see a reason to reopen that question."

Policymakers made several changes to the economic projections released in March, lifting the median forecast for inflation this year from 2.7% to 3.6% and the forecast for core inflation in 2026 from 2.7% to 3.3%.

Meanwhile, officials lowered the median forecast for 2026 economic growth to 2.2% from 2.4% in March. Their median forecast for unemployment at the end of 2026 was cut to 4.3% from 4.4%.

When asked about the Fed's decision to keep rates unchanged, Trump told reporters in France on Wednesday, "It's fine, either way."

Asked about a potential hike, Trump said: "It's unbelievable. Doing that would just drag on the U.S. economy, and it's very unusual." But he added: "We have a very good person over there now, and I will respect his thinking."