At his first Federal Open Market Committee meeting, Fed Chairman Kevin Warsh kept interest rates steady while delivering several surprises that rattled financial markets.
The committee voted unanimously to hold the benchmark federal funds rate in a target range of 3.5% to 3.75%, with no apparent dissents recorded during the session.
Despite the hold, the Fed’s “dot plot” of future expectations revealed a hawkish lean, with the FOMC splitting 9-9 between those expecting steady rates or a cut and those anticipating at least one hike.
The median dot pointed to a quarter percentage point increase later this year, signaling that policymakers are not ruling out tightening if inflation pressures persist.
Warsh confirmed he did not submit a dot himself, consistent with his long-standing skepticism of the Fed’s forward guidance framework and the Summary of Economic Projections.
“It’s been the practice of this committee for participants to submit these projections, and I have encouraged my colleagues to continue to do so,” Warsh said, adding that he refrained from offering projections consistent with his “long-held views on the SEP, at least as currently structured.”
Warsh also announced the formation of five task forces charged with studying Fed communications, the balance sheet, data sources, productivity and jobs, artificial intelligence’s economic impact, and the central bank’s approach to inflation.
On roughly a dozen occasions during his press conference, Warsh used the term “price stability,” striking an unexpectedly hawkish tone that sent the policy-sensitive 2-year Treasury yield surging by 14.4 basis points.
Rick Rieder, head of fixed income at BlackRock, said “today we believe that the Federal Reserve’s FOMC ushered in a new era of monetary policy in the United States.”
Krishna Guha, head of central bank strategy and economics at Evercore ISI, observed that “new Fed Chair Warsh sounded a bit like old hawkish Fed governor Warsh at his press conference today repeating multiple times the need for the Fed to deliver on its mandate for price stability.”
Warsh also dramatically overhauled the post-meeting statement, cutting it from more than 300 words under prior chairmen to just 130 words, reducing boilerplate language investors had long parsed for policy clues.
Jason Pride, chief of investment strategy at Glenmede, noted that the task force announcements “signal an institution in active review rather than steady state,” adding that the Fed’s operating framework will look “meaningfully different over Warsh’s tenure than it did under his predecessor.”
Dario Perkins, managing director of global macro at TS Lombard, said “Warsh wants his first impression to be as ‘the reformer,'” cautioning that “in terms of the policy outlook, Fed watching just got harder.”
Major market averages fell sharply following the meeting and continued declining as Warsh spoke at his press conference, reflecting investor uncertainty about the Fed’s evolving direction.
