The Federal Reserve held the policy rate steady at 3.50%–3.75% at its June meeting – an outcome that was never really in doubt. The more interesting signals came from the Summary of Economic Projections (SEP), the policy statement, and Chair Kevin Warsh’s first press conference, which may prove to be his most substantial. The statement was simplified and stripped of forward guidance, while the SEP showed a committee roughly split between holding rates steady for the remainder of the year and hiking at least once, a hawkish shift versus the previous projections in March.
The hold itself was straightforward. Even the more hawkish participants on the Federal Open Market Committee (FOMC) had not argued for an immediate hike, and core inflation of 3%–3.5% (as measured by Personal Consumption Expenditures, or PCE) remains inconsistent with cuts. For now, we still believe the Fed will stay on hold. However, depending on how the economic situation evolves, surprising policy pivots in either direction are possible – and without much forewarning from the new Fed chair.
At the press conference, Warsh – a longtime advocate of Fed reform – set an aggressive agenda for studying and ultimately reforming the Federal Reserve’s processes. He announced five task forces to review current practices, ask hard questions, and suggest reforms, with most expected to deliver results by the end of the year. Warsh also signaled a preference for a system in which financial markets react to incoming data – not to changes in the Fed’s forward guidance.
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Notably, Warsh did not submit his own projections for the SEP, and he emphasized that the committee is not bound by today’s projections. And while he mentioned the central bank’s dual mandate at the outset, Warsh generally de-emphasized the labor side of the mandate, and repeatedly noted the Fed’s commitment to the other side: price stability.
Throughout, Warsh largely avoided expressing views on the appropriate stance of monetary policy, leaving the committee’s hawkish skew to speak for itself. We expect these types of shifts will be a feature for a Warsh-led Fed. For markets, this could mean less anchoring guidance and more volatility in front-end rates.
The statement and SEP: a hawkish shift
Both the FOMC statement and SEP underwent major changes. The statement had previously included 1) a short discussion of current economic conditions, 2) rate and balance sheet policy changes, and 3) guidance on potential future policy changes. Under Warsh’s leadership, the statement was notably streamlined, and forward guidance was eliminated. This left a factual-sounding discussion of the current situation, paired with the assertion that the Fed will deliver price stability.
The overall structure of the SEP was largely unchanged, but the forecasts – especially the 2026 “dot plot” of individual participants’ policy rate projections – shifted meaningfully. Of the 18 dots submitted (Warsh abstained), nine members forecast at least one rate hike in 2026, eight expected rates would be kept steady, and one called for a cut – a sharp shift from March, when all FOMC members expected to be either cutting or on hold. This pushed the 2026 median policy rate forecast up to 3.8% (from 3.4% as of March). The 2027 median rose to 3.6% from 3.4% and 2028 to 3.4% from 3.1%, with modest rate cuts still forecast through the projection horizon. Importantly, the long-run dot was unchanged at 3.1% – a dovish signal embedded in an otherwise hawkish SEP.
The hawkish dot-plot shift came alongside upward revisions to the SEP inflation projections. Higher energy prices and the rapid pace of the AI build-out – along with more evidence that some of this is spilling over into core prices – likely contributed to the higher inflation outlook.
The press conference: ‘there’s a task force for that’
Inflation was a key discussion point during Warsh’s first press conference. In an apparent reference to recent developments in the Middle East, Warsh commented that FOMC participants were mindful of the rapidly changing environment and open to revising their views as the situation evolves. The reported 14-point draft U.S.–Iran Memorandum of Understanding is already pulling global energy prices lower. If the agreement holds and lower oil prices prove durable, inflationary pressures – and the perceived case for hikes – should ease.
In any case, Warsh emphasized that the committee is, as always, committed to doing the right thing to ensure price stability.
The most notable surprise of the press conference was Chair Warsh’s announcement of five task forces. Each was given a clear remit, and Warsh underscored that they will be composed of both Fed staff and outside subject matter experts, with work beginning in the coming weeks and most deliverables expected by year-end. He listed five task force topics:
- Communications strategy. Warsh hinted at less frequent press conferences, noting that “press conferences are useful, but when you have one, you want to make sure you have something important to say.” He also emphasized a need for markets to rely less on Fed perspectives so that they no longer act as a hall of mirrors for policymakers, but instead provide a valuable source of input.
- Balance sheet policy. The task force will “review the benefits and risks of the current [ample reserves] regime and the composition of the balance sheet.”
- Real-time data. Warsh argued the Fed is “overly reliant on macroeconomic data produced using ‘old-fashioned survey methods,’” pointing to the need for higher-frequency, alternative data sources.
- AI, productivity, and the labor market. The task force will examine the “economic impact of new general-purpose technologies.” Crucially, Warsh observed that while AI has already generated demand-side effects through investment in data centers, the supply-side productivity benefits may take longer to emerge.
- Inflation framework. The task force will “examine the drivers of inflation, first principles, and weigh the full range of ideas for delivering price stability in a changing economy.” Notably, Warsh argued that inflationary pressures appeared uneven across the economy, with housing a source of disinflationary pressures, despite the more inflationary AI-related pressures.
Our view: Warsh is putting his mark on the Fed
Warsh is already aggressively setting the agenda. While ultimately it will be up to the task forces to study the issues and recommend reforms, we think it is very likely they will produce some notable changes – including fewer press conferences, less prescriptive communication, more willingness to surprise bond markets, and ultimately more rate volatility. This has contributed to markets building in more risk premium in the front end of the interest rate curve.
However, quickly changing dynamics in the Middle East and the dual-edged nature of the AI build-out make the outlook unusually uncertain in either direction. Indeed, as conditions evolve, Warsh and the committee will be poised to pivot – potentially quickly in either direction – to align policy with the goal of delivering price stability over time.
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