FOMC Recap: Warsh the Reformer as the Committee Shifts Hawkish

Federal Reserve, FOMC Key Points

• The Federal Reserve’s FOMC held interest rates in the 3.50-3.75% range, as expected.
• Nine of the 18 FOMC members now expect at least one interest rate increase this year, with six of those expecting multiple interest rate increases
• Traders are viewing the meeting as more hawkish than anticipated, with interest rates rising across the curve, stock indices edging lower, and the US dollar rallying.

FOMC Interest Rate Decision

In a unanimous vote, the Federal Reserve’s FOMC kept interest rates unchanged in the 3.50-3.75% range, as expected.

There were no other changes to monetary policy at today’s meeting.

FOMC Monetary Policy Statement

In its accompanying monetary policy statement, the FOMC removed the controversial reference to “additional rate adjustments,” signaling a shift to a more balanced outlook for interest rates, while emphasizing elevated inflation and the importance of price stability.

More to the point, the statement was dramatically shorter in Chairman Kevin Warsh’s first meeting, down to just 130 words (from 400 under Powell), reflecting his push for less communication from the central bank:

 

Source: Federal Reserve

FOMC Summary of Economic Projections

The median FOMC member made the following near-term adjustments to their quarterly economic forecasts, reflecting economic data and geopolitical developments over the last three months:

• 2026 GDP forecast revised DOWN from 2.4% to 2.2%
• 2026 Unemployment forecast revised DOWN from 4.4% to 4.3%
• 2026 Core PCE inflation forecast revised UP from 2.7% to 3.3%

The median FOMC member also revised their 2027 and 2028 inflation forecasts to 2.5% and 2.1% respectively.

Source: Federal Reserve

Not to bury the lede, the “dot plot” of interest rate expectations were the most market-moving development from the central banks economic projections. Nine of the 18 FOMC members now expect at least one interest rate increase this year, with six of those expecting multiple interest rate increases. The median FOMC member expects interest rates to average 3.8% at the end of this year (up from 3.4% in March), 3.6% at the end of 2027 (up from 3.1%), and 3.4% at the end of 2028 (up from 3.1%).

 

Source: Federal Reserve

Notably, Chairman Warsh did not submit economic projections, again reflecting his skepticism toward the whole endeavor.

In short, the committee appears to be broadly endorsing the market’s expectation for higher interest rates this year, and traders are accordingly pricing in about 34bps’ worth of hikes by the December FOMC meeting.

FOMC Chairman Warsh’s Press Conference

In his inaugural press conference as Chairman, Kevin Warsh positioned himself as reform-oriented, specifically announcing five new task forces to review everything from the central bank’s communication strategy to economic data sources to inflation frameworks. The Chairman also appeared to pour cold water on the necessity for continued press conferences after every meeting, implying that they might only be conducted “when there’s something important to say.”

In terms of the Fed’s dual mandate, Warsh stuck to the script, emphasizing “price stability” throughout the Q&A and only briefly mentioning the labor market when prompted at the end, contributing to the market’s hawkish interpretation of the meeting as a whole.

Highlights from his comments follow [emphasis mine]:

• WE RECOGNIZE INFLATION WELL AHEAD OF FED'S 2% GOAL
• PERSISTENTLY HIGH PRICES ARE A BURDEN TO THE AMERICAN PEOPLE
• RECENT PAST NEED NOT BE PROLOGUE ON INFLATION
• WE AGREED FORWARD GUIDANCE ISN'T WELL SUITED TO CURRENT JUNCTURE
• APPOINTING TASK FORCE IN FIVE AREAS OF MONETARY POLICY: 1. FED COMMUNICATIONS 2. FED'S BALANCE SHEET 3. USE AND RELIANCE ON EXISTING DATA SOURCES 4. PRODUCTIVITY AND JOBS 5. FED'S INFLATION FRAMEWORKS
• EXPECT TASK FORCES WILL BEGIN WORK IN NEXT COUPLE WEEKS, MOST WILL CONCLUDE BY YEAR END
• I SEE NO REASON TO REVISIT 2% INFLATION TARGET
• FED POLICY APPEARS TO BE RESTRICTIVE VIS A VIS HOUSING MARKET, BUT NOT FINANCIAL MARKETS
• WE'LL FIX FIVE YEARS OF MISSES ON INFLATION
• WANT TO HAVE SOMETHING IMPORTANT TO SAY FOR PRESSERS
• SOME CHANGES TO COME MAY BE WORTHY OF PRESS CONFERENCES
• FINANCIAL MARKET PRICES ARE THE MOST IMPORTANT SOURCE OF INFORMATION TO GUIDE CENTRAL BANKERS
• SOME ECON DATA WE RECEIVE MIGHT BE AN 'ECHO OF HISTORY'
• WE NEED TO MAKE SURE RISING PRICES DON'T BROADEN THROUGH THE ECONOMY
• WARSH DECLINES TO COMMENT ON ANY INTERACTIONS WITH TRUMP SINCE CONFIRMATION
• AI IS FILLED WITH OPPORTUNITY, RISKS
• NONE OF 19 AT TABLE FELT WE NEEDED TO TIGHTEN TODAY

US Dollar Technical Analysis – DXY Daily Chart

Source: StoneX, TradingView

In terms of the market’s reaction, traders are viewing the meeting as more hawkish than anticipated, with interest rates rising across the curve, stock indices edging lower, and the US dollar rallying.

Focusing in on the latter, the US Dollar Index (DXY) has bounced strongly off 99.50 support to rally toward its highest level since the end of March. The 13-month high sits within striking distance at 100.50 and could serve as strong resistance if the greenback continues to rally in the coming days, a reasonable expectation given the more-hawkish-than-anticipated guidance in the SEP.

-- Written by Matt Weller, Global Head of Research

Check out Matt’s Daily Market Update videos on YouTube and be sure to follow Matt on Twitter: @MWellerFX