Fed Chair Warsh Ends Forward Guidance as FOMC Keeps Rates Steady
At the first policy meeting chaired by Kevin Warsh, the Federal Reserve left the federal funds rate unchanged and signaled a shift away from forward guidance amid heightened inflation concerns.
The Federal Reserve’s Federal Open Market Committee kept the benchmark federal funds rate at 3.5%-3.75% during its June meeting, the first under new chair Kevin Warsh. Minutes released on Wednesday highlighted growing worries about inflation, especially after a recent surge in energy prices that pushed price growth farther from the Fed’s 2% long-run target.
Committee members said they faced "high assessed uncertainty" about whether future policy would require cuts or hikes. While most participants noted scenarios in which inflation could ease back toward 2% and thus justify maintaining or lowering rates, they also identified situations—such as sustained AI-driven demand, ongoing Middle East conflict, or tariff impacts—where inflation might stay elevated and some policy tightening could be needed.
The meeting’s dot plot showed nine of the 18 voting members forecasting at least one rate increase before the end of 2026, with six projecting two 25-basis-point hikes. The economic outlook was revised upward, raising the projected personal consumption expenditures (PCE) inflation rate for year-end to 3.6% from the earlier 2.7% estimate.
Warsh indicated a desire to discontinue the Fed’s forward-guidance practice and did not submit an individual economic forecast. The post-meeting statement was notably shorter than those issued under former chair Jerome Powell, reflecting a consensus among participants to avoid language suggesting an easing bias.
"Most participants remarked on scenarios in which inflationary pressures would dissipate and inflation would soon begin to return to 2%. In such scenarios, almost all of these participants noted it would likely be appropriate to maintain or eventually lower the target range for the federal funds rate," the FOMC said.
"Most participants, however, also point to scenarios in which, in the context of stable labor market conditions, inflation would remain elevated due to strong AI-related demand, the conflict in the Middle East, or the effects of tariffs," the FOMC added.