Fed Holds Rates; Warsh Downplays Forward Guidance, Stresses Inflation Fight

Federal Reserve Chair Kevin Warsh said after his first policy meeting that restoring price stability is a priority. Earlier, Fed officials held rates steady and signaled support for a rate hike this year.

Speaking at a press conference, Warsh said persistently high prices burden Americans, but the past does not necessarily determine the future, and the FOMC is committed to achieving price stability.

Meanwhile, Warsh downplayed the importance of his colleagues' latest rate projections. The dot plot showed that among 19 officials, 9 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 were also not very confident in their projections, and many acknowledged high uncertainty in the economic outlook. When asked about the rate debate at the meeting, he described a 'healthy internal debate.'

The new chair, a long-time critic of so-called forward guidance, also said he did not submit his own rate projection.

The FOMC voted unanimously to hold 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 assigned 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 'steady.' Officials also said productivity growth and capital investment are strong. The policy statement was more concise than previous ones, and given Warsh's earlier pledge to reform Fed communication, this brevity may signal future changes.

Upon taking office last month, Warsh promised 'institutional change' at the central bank. In his opening remarks, he announced the formation of multiple working groups to evaluate five areas of Fed operations and study possible reforms.

The working groups will examine 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 the groups will involve external experts and be supported by Fed staff.

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

'I see no reason to revisit that issue until we have re-proven our ability and determination to achieve the 2% inflation target,' he said.

Policymakers made several adjustments to the March economic projections, raising the median inflation forecast for this year from 2.7% to 3.6% and the 2026 core inflation forecast from 2.7% to 3.3%. Meanwhile, they lowered the median GDP growth forecast for 2026 from 2.4% (March) to 2.2%, and cut the median unemployment rate forecast for end-2026 from 4.4% to 4.3%.

When asked about the Fed's decision to hold rates steady, Trump told reporters in France on Wednesday: 'It's fine, whatever.'

When asked about a potential rate hike, Trump said: 'That's unbelievable. It will only drag down the U.S. economy and is very abnormal.' But he added: 'Now we have a very good person over there, and I will respect his opinion.'

Editor: Ding Wenwu