The Fed announced that it will hold key interest rates at 3.50% - 3.75%.
- Fed hikes its inflation outlook to 3.6% for end-2026, up from 2.7% in March.
- Warsh announced five task forces, targeting five different areas of the Fed.
- Fed sees one interest rate hike in 2026, but Warsh stayed mum.
The U.S. Federal Reserve left interest rates unchanged in Kevin Warsh’s first decision as the Fed chair on the back of elevated inflation and a strong job market. The Federal Open Market Committee approved the following statement for release by a 12 – 0 vote.
The choice to maintain rates represented the fourth consecutive pause by officials. This move comes as the Fed pivots its attention toward inflation and away from the job market, influenced by energy price fluctuations resulting from the conflict in Iran.
In their post-meeting statement, officials said inflation remained elevated and vowed to deliver price stability. “Inflation remains elevated relative to the Committee’s 2 percent goal, in part reflecting supply shocks that have driven price increases in certain sectors, including energy,” as per the Fed’s monetary policy statement.
Fed Signals One 2026 Rate Cut, Warsh Stays Mum
The Federal Reserve’s latest projections indicated one rate increase in 2026, though Kevin Warsh did not provide his projections to the dot plot.
According to the latest projections, half of the 18 participating officials expect the federal funds rate to end 2026 above the current target range of 3.5% to 3.75%. Market observers also noted that the dot plot appeared to be missing one entry. While the Federal Reserve did not identify the individual, Kevin Warsh opted not to submit a personal rate forecast.
The median outlook for the federal funds rate at the end of 2026 has been adjusted to 3.8%. This represents a 25-basis-point increase over the current range and an upward revision from the 3.4% forecast issued in March.
Fed Hikes Its Inflation Outlook, Much Above 2% Target
Driven by rising oil prices linked to the Iran war, the Federal Reserve anticipates that inflation will finish the year at significantly higher levels.
According to current projections from policymakers, headline PCE inflation is expected to reach 3.6% year-over-year by the end of December, a sharp increase from the 2.7% forecast in March. Meanwhile, core inflation, which strips out volatile energy and food prices, is projected to end the year at 3.3% year-over-year.
Warsh Announces Five Task Forces
During his inaugural major address as Federal Reserve Chair, Kevin Warsh announced the creation of five specialized task forces. These groups are designed to investigate diverse factors influencing monetary policy and evaluate their integration into the central bank's strategy.
The newly formed committees are tasked with examining the areas of Fed's communications, its balance sheet, its use and reliance on existing data sources, productivity and jobs in an era of transformation, and its inflation frameworks.
“Each task force will serve an objective shared by everyone in the system, shared by everyone around that table that I sat with over the last couple of days, a Federal Reserve that is clear-eyed about its mission, fit for purpose, and focused on the future,” Warsh said.
How Markets Reacted To The Fed
The S&P 500 was down 0.6% on the day as of 2:05 p.m. ET. The Nasdaq Composite was last down 0.7%, and the Dow Industrials were down 160 points, or 0.3%.
Treasury yields were also higher. The 2-year yield was up nearly 11 basis points at 4.153% The rate on the 10-year Treasury was up 4 basis points at 4.469%.
At the time of writing, the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 index, was down 0.6%, while the Invesco QQQ Trust (QQQ) was flat. Retail sentiment around the S&P 500 ETF on Stocktwits was in the ‘ bullish’ territory.
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