Federal Reserve Holds Rates Steady as Kevin Warsh Signals Possible Hike by 2026

The Federal Reserve held its benchmark interest rate unchanged for the fourth-straight time at a range of 3.5%-3.75% as Kevin Warsh led his first policy meeting as chair.

In Washington, the FOMC statement said, "Economic activity is expanding at a solid pace despite elevated uncertainty that owes, in part, to the conflict in the Middle East," and added that "The Committee will deliver price stability."

ABC News

Nine Fed officials indicated they expect at least one rate increase by year-end 2026, while just one expected a cut, according to the dot-plot released alongside the decision.

ABC News reported that Warsh said, "Persistently high prices are a burden for the American people," and that all 12 members of the FOMC voted to hold rates steady.

The decision came as inflation was described as "elevated" and partly driven by "supply shocks that have driven price increases in certain sectors, including energy," with the Fed also removing language that had signaled an easing bias.

After the Fed’s decision, markets moved sharply, with the Dow falling 507 points, or 0.98%, and the S&P 500 down 1.21%, while the tech-heavy Nasdaq Composite fell 1.34%.

CNN reported that traders were pricing in a 49% chance of a rate hike in September, up from a 27% chance the day before, after Warsh signaled higher rates were ahead.

ABC News

Warsh also said he would not provide forward guidance, telling reporters, "I can’t give you any forward guidance about what we’re going to do next."

In a separate account, the Guardian said Warsh confirmed he was the sole board member who did not contribute to the projections and noted that nine members projected at least one rate increase before year-end.

The Guardian also quoted the Fed’s statement that inflation was "elevated relative to the committee’s 2% goal" and that it reflected supply shocks driving price increases in sectors including energy.

Warsh used the meeting to announce five task forces aimed at overhauling major Federal Reserve operations, including how it communicates, uses economic data, and evaluates inflation.

The Guardian reported that one task force would reassess how the Fed communicates with the public, including "the Fed’s news conferences, dot-graph projections and meeting transcripts and minutes."

In Washington, Warsh said the policy statement was "just gives you the facts as best we can judge it," as the Fed’s update was described as much shorter than its April statement.

The BBC said the Fed’s statement removed a hint that it was leaning toward lowering interest rates, and that nine of the 18 central bankers who participated predicted an interest rate hike this year while just one expected a cut.

ABC News framed the stakes for households and prices by reporting Warsh’s commitment to bring inflation down to the Fed’s desired level of 2% and noting that the annual pace of price increases was more than twice that target.