Federal Reserve begins Warsh era by keeping rates on hold

Treasury yields rose after the release of the policy statement and projections. U.S. stocks fell modestly while the dollar gained ground against a basket of currencies. Short-term interest-rate futures are now pricing a bigger chance of a rate hike by September than a hold.

Only 18 of 19 policymakers submitted rate projections for the so-called “dot-plot” chart released by the Fed, and while the missing “dot” is not identifiable, it was presumably withheld by Warsh, who is only about three weeks into the job and was critical of the quarterly Summary of Economic Projections.

The statement marks a turning point not just in leadership at the central bank but in a monetary policy outlook that since the fall of 2024 was geared to lower borrowing costs from the elevated rates used to help tame inflation that hit 40-year highs during the COVID-19 pandemic.

Projections among officials showed the policy interest rate, which was set in the 3.50% to 3.75% range since last December, would rise by a quarter of a percentage point by the end of this year.

The outlook for inflation for the end of 2026 was marked up to 3.6% from 2.7%, before it is expected to fall to 2.3% next year, all without a rate increase — consistent with the statement language attributing high prices to supply disruptions that would typically be expected to pass.

Economic growth was marked down slightly, with the unemployment rate expected to end the year at 4.4%, the same as in the Fed’s March projections.