Warsh's Fed Debut: Rates Held, Hikes Hinted, Dots Dropped 🚫📉

The Federal Reserve held its benchmark federal funds rate steady at 3.50%–3.75% on June 17, marking the fourth consecutive meeting without a change and the first policy decision under Chair Kevin Warsh. The unanimous Federal Open Market Committee vote aligned with a 97% probability priced into futures markets ahead of the announcement, but the accompanying Summary of Economic Projections and Warsh's debut press conference delivered a notably hawkier outlook. The Committee's 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 declared, "The Committee will deliver price stability."

The updated dot plot removed its last remaining projection for a 2026 rate cut, and futures traders subsequently priced a 66% probability of at least one rate hike before year-end. Median projections rose across the curve, with the year-end federal funds rate climbing from 3.4% to 3.8% for 2026, from 3.1% to 3.6% for 2027, and from 3.1% to 3.4% for 2028. The median 2026 PCE inflation forecast jumped from 2.7% in March to 3.6% in June, while core PCE was revised from 2.7% to 3.3%. The median 2026 GDP growth forecast dipped from 2.4% to 2.2%, and the 2027 projection held at 2.3%. The median unemployment rate projection for 2026 improved from 4.4% to 4.3%.

Attention centered on Warsh, who was confirmed by the Senate in May after the Department of Justice dropped a criminal investigation into predecessor Jerome Powell. Warsh has long criticized the Fed's reliance on forward guidance and quarterly projections, telling a State Street conference last year, "If you're not very good at something, you should do less of it. These forecasts have been abysmal. My dots wouldn't be perfect either, so I wouldn't give them." A Wall Street Journal profile published Sunday quoted his advice to the central bank: "Stop talking so much. More thinking, less talking." Goldman Sachs and Bank of America economists had expected Warsh to withhold his individual dot from the SEP, which would have made him the first Fed chair in 14 years not to participate. The June dot plot was produced without Warsh's participation, removing the final projected 2026 cut that had appeared in every prior SEP this year.

Treasury yields reflected the shift, with the 10-year benchmark near 4.47% and the 30-year approaching 4.97%. A Reuters poll of economists found 72 of 102 expect rates to remain unchanged through the end of 2026, while the European Central Bank is moving in parallel toward tightening. The Fed's preferred inflation gauge, the Personal Consumption Expenditures Price Index, stood at 3.8% in April, and economists polled by Reuters predicted consumer inflation reached 4.2% year-over-year last month.

Crypto markets reacted modestly. $BTC traded around $65,300, dipping just over 1% on the day but holding a 5% gain over the past week. $ETH rose 7.6% to $1,763 and Solana gained 13% to $73 over the same seven-day window. UNI, the governance token of Uniswap, climbed 19.8% on the day to $3.63, up 48.4% on the week according to CoinGecko data, outpacing both $BTC and $ETH. Combined centralized exchange volumes in May fell 3.45% to $4.41 trillion, the lowest since September 2024, while RWA perpetual futures volumes rose 10.4% to a new all-time high. The first Warsh-era decision closed with rates unmoved, but the projections made clear the Fed's next move is now more likely up than down.