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The Federal Reserve on Wednesday left its benchmark interest rate unchanged amid resurgent inflation, but nearly half of its policymakers said they would support a rate hike later this year.
The Federal Open Market Committee (FOMC) kept the federal funds rate, which affects borrowing costs for consumers and businesses, in its current range of 3.5% to 3.75%. Economists had widely expected the central bank to keep rates steady.
The so-called easing bias — a sentence in recent FOMC policy statements signaling the central bank was leaning toward cutting interest rates — was removed from the June guidance, which was significantly slimmer than the typical statement.
“You might have already noticed something, a difference in today’s policy statement,” Warsh said in a press conference to discuss the Fed’s latest interest rate decision. “It’s a bit shorter, a bit simpler and it dispenses with some older language. That statement just gives you the facts as best we can judge it.”
The Fed also released its Summary of Economic Projections (SEP) on Wednesday, which shows that nearly half of FOMC members said they could support a rate hike later this year. The vote to keep rates steady was unanimous, with all FOMC voting members in favor of maintaining the current range.
“Inflation remains elevated relative to the Committee’s 2% goal, in part reflecting supply shocks that have driven price increases in certain sectors, including energy,” the FOMC said in Wednesday’s statement.
“Today’s meeting confirms that the Fed’s recent hawkish shift was not just about higher energy prices,” Kay Haigh, global head and CIO of Fixed Income and Liquidity Solutions at Goldman Sachs Asset Management, said in an email. “Despite the recent pullback in oil, half of the members of the FOMC expect rate hikes as soon as this year, reflecting strong labor market and inflation data.
Haigh added, “Our base case remains that the Fed can just about avoid hikes, but the path is narrow, and there will be a high premium on the incoming inflation data.”
This week’s meeting is the first presided over by new Federal Reserve Chairman Kevin Warsh, who was picked by President Trump to succeed former chair Jerome Powell.
Investors and economists will be closely watching Warsh during his 2:30 p.m. ET press conference for indications of how he plans to keep the U.S. economy on track, as well as his outlook on inflation and the labor market.
Mr. Trump had repeatedly pressed Powell, whose term as Fed chief ended in May, to lower interest rates. But with U.S. inflation at its highest level in more than three years and well above the Fed’s 2% annual target, many economists expect the FOMC to remain on the sidelines through year-end.
“Warsh has two immediate jobs at this first meeting: getting the FOMC and the broader Fed leadership aligned with his vision going forward, and making sure the markets have confidence in what he’s doing,” said Hank Smith, head of investment strategy at investment firm Haverford Trust, in an email before the meeting.
Smith added, “This is not the environment for a rate cut or a rate hike — it’s an environment for ‘steady as she goes’ — and I’ll be listening for whether he projects that kind of discipline and team-building in his first press conference.”
The Fed’s new inflation forecast
Another major change in the Fed’s economic projections is a sharp increase in inflation expectations for 2026. The central bank’s previous forecast, issued in March, forecast that the Personal Consumption Expenditures index, the Fed’s preferred inflation gauge, would end the year at an annual rate of 2.7%.
But in today’s forecast, the FOMC members are penciling in inflation rising to an annualized 3.6% by year-end. Excluding volatile energy and gas prices, inflation could hit 3.3%.
“The median official now expects headline and core inflation well above 3% by the end of this year, and core inflation to reach 2.5% by end-2027,” Oxford Economics said in a note to investors.
