Fed Chair Warsh's Debut: Downplays Dot Plot, Sticks to 2% Inflation Goal
At 2:00 AM Beijing time on June 18, the Fed announced it would keep the federal funds rate target range unchanged at 3.5% to 3.75%, the fourth consecutive hold, in line with market expectations.
In the post-meeting statement, officials said inflation remains elevated, reiterated their commitment to price stability, and continued to describe economic growth as 'solid.' Officials also noted strong productivity growth and capital investment. The statement was more streamlined than previous ones, suggesting the Fed's communication style may be shifting.
Policymakers made several adjustments to the economic projections released in March: the median inflation forecast for this year was raised from 2.7% to 3.6%, and the 2026 core inflation forecast from 2.7% to 3.3%. Meanwhile, the 2026 growth forecast was cut from 2.4% to 2.2%, and the unemployment rate forecast was lowered from 4.4% to 4.3%.
In his first post-meeting press conference, Fed Chair Warsh pledged to restore price stability and emphasized that while the rate decision was a hold, officials signaled support for a rate hike this year.
Warsh said persistently high prices are a burden on Americans, but the past does not necessarily dictate the future, and the FOMC is committed to price stability. He downplayed the significance of his colleagues' latest rate projections, noting that many officials are equally uncertain about the outlook due to high uncertainty in the economic outlook.
The dot plot showed that of 19 officials, 9 expect at least one 25-basis-point rate hike this year, with 6 expecting at least two hikes, while 9 expect rates to stay unchanged or be cut. Warsh said the committee had a 'healthy internal debate' and noted he himself declined to submit a rate projection.
Communication Framework Overhaul: Abandoning Forward Guidance, Downplaying Dot Plot
Warsh made clear that the Fed has abandoned forward guidance, believing the tool no longer fits the current situation, and therefore cannot provide guidance on specific future actions.
He also said the dot plot is of limited help in implementing policy and that the FOMC does not consider itself bound by rate projections. Warsh himself did not provide a dot plot projection at this meeting.
He added that press conferences themselves are a useful communication tool, but making certain adjustments in the future would be valuable. It would not be surprising if a new communication framework is unveiled before year-end.
Sticking to 2% Inflation Target, Guarding Against Second-Round Effects
Warsh stressed that the 2% inflation target is the Fed's long-term goal and there is no reason to reassess it until it is achieved. The Fed is committed to addressing the five-year inflation deviation.
He pointed out that the Fed cannot significantly influence specific price changes from supply shocks like energy, and its core task is to ensure there is no 'second-round price effect.'
Warsh also noted that most of the data the Fed relies on come from outdated survey methods, which is an important area for future reform.
Five Special Task Forces to Drive Institutional Reform
To address current challenges, Warsh announced the appointment of five special task forces in monetary policy areas, expected to complete most of their work by year-end.
The communications task force will advise on adjustments 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 specifically examine the impact of AI on productivity; and the employment task force will focus on labor market dynamics. Additionally, an inflation task force will specifically examine the drivers of inflation.
Independence and External Relations
Warsh emphasized that the Fed will never delegate decision-making to any outsider. He revealed that he has had three breakfast meetings with Treasury Secretary Bessent so far and has met with the Fed's inspector general, who will release a report this summer on the renovation of the Fed building.
He also said markets tend to perform best when they react to real-time data, and market prices themselves may be the most important reference.
Market Reaction: US Stocks, Dollar, and Treasuries Under Pressure
At the close on June 18, US stocks fell Wednesday, with the Dow dropping about 500 points, tech heavyweights leading losses, and Treasury yields surging. Several Fed officials hinted at possible rate hikes this year to curb inflation, leaving investors uncertain about the monetary policy path.
The Dow fell 507.12 points, or 0.98%, to 51,492.55; the Nasdaq fell 354.68 points, or 1.34%, to 26,021.65; the S&P 500 fell 91.25 points, or 1.21%, to 7,420.
The dollar index posted its largest gain in three months. USD/JPY rose 0.14% to 160.65; GBP/USD fell 0.99% to 1.3293; EUR/USD fell 0.92% to 1.1501.
In US bond markets, short-term Treasury prices fell sharply, with the yield curve flattening dramatically. The 2-year yield rose as much as 15 basis points to 4.20%, the highest since February 2025.
Oil prices edged up after two days of sharp declines, with WTI crude rising 1% to just below $77 per barrel and Brent crude closing below $80.
Institutional Views: Clear Hawkish Signal
Christopher Hodge, chief US economist at Natixis North America, said the decision was overall hawkish—rates unchanged, the easing bias removed with no dissenting votes, and a more streamlined statement emphasizing price stability.
Kay Haigh, analyst at Goldman Sachs Asset Management, said the rate decision shows the Fed's recent hawkish shift is not just due to rising energy prices. Despite falling oil prices, half of FOMC members still expect a rate hike as early as this year, giving high weight to future inflation data.
Nick Timiraos, the 'Fed whisperer,' said the dot plot shows a clear hawkish tilt, and the policy statement was comprehensively revised from start to finish, with text significantly shortened. Market expectations for the rate path may need to be recalibrated.
