Fed Chair Warsh Debut: Downplays Dot Plot, Sticks to 2% Inflation Goal

At 2:00 a.m. Beijing time on June 18, the Federal Reserve said it would keep the federal funds target range unchanged at 3.5% to 3.75%, marking the fourth straight meeting without a rate move this year, in line with market expectations.

In the post-meeting statement, officials said inflation remained elevated, reaffirmed their commitment to price stability, and continued to describe economic growth as “solid.” They also noted strong productivity growth and capital investment. The statement was shorter than previous ones, which many saw as a sign that the Fed’s communication style may be changing.

Policymakers made several changes to the economic projections released in March: the median inflation forecast for this year was raised from 2.7% to 3.6%, the 2026 core inflation forecast was lifted from 2.7% to 3.3%, while the median 2026 growth forecast was cut from 2.4% to 2.2% and the median unemployment forecast at end-2026 was lowered from 4.4% to 4.3%.

Fed Chair Warsh pledged to restore price stability after his first policy meeting in office. Earlier, Fed officials held rates unchanged and signaled support for another hike this year.

“Persistently high prices are a burden on the American people, but the past does not necessarily determine the future. The officials are clear and unified, and the FOMC will work to achieve price stability,” Warsh said at the press conference.

Warsh also downplayed the significance 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, 6 expected at least two hikes, and 9 expected rates to stay unchanged or be cut.

Warsh said other officials were also not very confident in their forecasts, and many acknowledged that the economic outlook remains highly uncertain. When asked about the rate debate at the meeting, he said the committee had engaged in a “healthy internal debate.”

The long-time critic of so-called “forward guidance” said he had declined to submit a rate forecast himself and believed the dot plot was of limited use for policy implementation.

The Fed’s dot plot showed that among the 18 officials who submitted forecasts, 1 thought rates should rise by a cumulative 75 basis points over the rest of 2026, 5 thought a cumulative 50-basis-point hike was appropriate, 3 thought a 25-basis-point hike was needed, 8 thought rates should stay unchanged, and 1 thought a cumulative 25-basis-point cut was appropriate.

Key Points from Fed Chair Warsh’s First Press Conference

1. Reworking the communication framework: abandoning forward guidance, downplaying the dot plot. This was the most important signal from the press conference, as Warsh is pushing a “say less, think more” communication approach.

He made clear that the Fed has already abandoned forward guidance and will not be able to provide forward guidance on specific actions in the future.

He said the dot plot does little to help policy execution, that the FOMC does not see itself as bound by rate forecasts, and that he did not provide a dot-plot forecast today either.

Warsh also said press conferences are a useful communications tool, but that some changes to them in the future would be valuable, and it would not be surprising if a new communication framework is unveiled before year-end.

2. Inflation target and response: stick to 2%, guard against second-round effects.

Warsh stressed that the 2% inflation target is the Fed’s long-term goal, and until it is achieved there is no reason to reassess it. The Fed is committed to fixing a five-year inflation deviation.

He noted that the Fed cannot materially affect specific prices such as energy shocks, and its core job is to make sure there are no “second-round price effects.”

He also said most of the data the Fed relies on today come from outdated survey methods, which is another area that needs reform.

3. Institutional reform: five special task forces set up. To address current challenges, Warsh announced five special task forces in the monetary policy area and expects most of their work to be completed by year-end.

The communications task force will advise on changes to the Summary of Economic Projections (SEP); the balance sheet task force will assess appropriate reserve responsibilities; the data sources task force will address data lags; the productivity task force will examine the impact of artificial intelligence on productivity; and the employment task force will focus on labor-market dynamics.

4. Independence and outside ties.

Warsh stressed that the Fed will never hand decision-making authority to any outside party.

He revealed that he has so far had three breakfast meetings with Treasury Secretary Scott Bessent and has met with the Fed inspector general, who will release a report this summer on the renovation of the Fed building.

He also said markets perform best when reacting in real time to future data, and that market prices themselves may be the most important reference.

Market Reaction

US stocks closed lower, with the Dow falling 500 points. At the June 18 close, US stocks ended lower on Wednesday, with the Dow down about 500 points. Tech heavyweights led declines, Treasury yields surged, and several Fed officials signaled that a rate hike could come this year to curb inflation, leaving investors uncertain about the path of monetary policy.

The Dow fell 507.12 points, or 0.98%, to 51,492.55; the Nasdaq lost 354.68 points, or 1.34%, to 26,021.65; and the S&P 500 fell 91.25 points, or 1.21%, to 7,420.

Oil edged higher as traders waited for a US-Iran deal. After two straight days of sharp declines, oil prices inched up on Wednesday, but expectations for an imminent temporary peace agreement between the US and Iran continued to weigh on the market. The deal could reopen the Strait of Hormuz and bring millions of barrels of crude back to the market.

WTI crude rose 1% to settle below $77 a barrel. The global benchmark Brent crude closed below $80 a barrel. US President Donald Trump defended the temporary deal with Iran on Wednesday and said it could be signed as early as Thursday.

The dollar posted its biggest gain in three months as the Fed dot plot flashed a hawkish signal. The dollar index rose by the most in three months after the Fed kept rates unchanged as expected, but the dot plot showed that 9 of the 19 officials expected at least a 25-basis-point hike this year.

The dollar/yen pair rose 0.14% to 160.65 yen, hitting its weakest level since July 2024 and potentially prompting intervention from Japanese authorities. Sterling/dollar fell 0.99% to $1.3293, while euro/dollar fell 0.92% to $1.1501.

US bonds: short-end selloff and a sharply flatter curve. Short-term US Treasury prices fell sharply on Wednesday, flattening the yield curve. The move followed the Fed’s first policy meeting under Chair Kevin Warsh, at which policymakers made a hawkish adjustment to the outlook while leaving rates unchanged.

Short-end yields surged, with the 2-year Treasury yield at one point rising 15 basis points to 4.20%, its highest level since February 2025. By 3 p.m. New York time, the yield remained near that level, while mid-curve yields rose less and long-end yields were little changed.

Institution Views

Natixis: The Fed statement was sharply shortened and the hawkish signal was clear. Christopher Hodge, chief US economist for North America at Natixis, said this was broadly a hawkish move: rates were left unchanged, the easing bias was removed, and there were no dissenting votes. The statement was much shorter than before and ended by stressing the commitment to price stability.

Goldman Sachs: A rate hike is barely avoidable, and inflation will be the key variable. Kay Haigh, an analyst at Goldman Sachs Asset Management, said today’s decision confirmed that the Fed’s recent hawkish shift is not just about rising energy prices. Even though oil prices have eased recently, half of FOMC members now expect a hike as early as this year, reflecting a strong labor market and inflation data.

Nick Timiraos, the “Fed whisperer”: The dot plot showed a clear hawkish tilt. Nine of the 19 officials expect at least one hike this year, and six even expect multiple hikes; only one official sees a rate cut this year. Meanwhile, the Fed’s policy statement was comprehensively revised from start to finish, the text was much shorter, and the overall communication framework changed significantly.

Editor-in-chief: Ding Wenwu