Warsh's Fed Debut Holds Rates, Quietly Kills the Cut Crowd's 2026 Hopes 📉

The Federal Reserve left its benchmark federal funds rate range unchanged at 3.50%–3.75% on June 17, the fourth consecutive meeting of holding steady and the first policy decision under newly installed Chair Kevin Warsh, who took over from Jerome Powell after Senate confirmation. The FOMC voted unanimously to maintain the range, and the move had been priced in at a 97.4% probability on the CME FedWatch tool ahead of the announcement. In its statement, the Committee 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 bluntly: "The Committee will deliver price stability." The statement also referenced stability in the U.S. labor market, days after May payrolls surprised to the upside.

The more consequential shift came in the updated Summary of Economic Projections, which lifted the median federal funds rate path and inflation forecasts. The year-end 2026 projection rose from 3.4% to 3.8%, the 2027 projection increased from 3.1% to 3.6%, and the 2028 projection moved from 3.1% to 3.4%. Median 2026 PCE inflation was revised from 2.7% to 3.6%, with core PCE inflation lifted from 2.7% to 3.3%. The dot plot dropped its last remaining 2026 cut projection entirely, and futures traders moved to price a 66% probability of at least one rate hike before year-end. The 10-year Treasury yield sat near 4.47% and the 30-year near 4.97% following the decision. Warsh, who has long criticized the dot plot and has signaled a preference for a leaner Fed with less forward guidance, did not submit his own projections, a move Bank of America and Goldman Sachs economists had flagged as possible. Raymond James analysts had anticipated at least three voting members would pencil in a hike before December, a shift the final dot plot confirmed. In a Wall Street Journal profile published Sunday, Warsh's advice to the central bank was: "Stop talking so much. More thinking, less talking." He separately said at 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."

Crypto markets reacted modestly. $BTC traded around $65,300, dipping over 1% on the day following the announcement while still up roughly 5% on the week. $ETH rose 7.6% over the past seven days to $1,763, and $SOL climbed 13% to $73 over the same period. Higher projected rates and tighter financial conditions are typically a headwind for risk assets, and the Bank of America expects the FOMC to remove language favoring future cuts and upgrade its assessment of the labor market in this round. A Reuters poll of 102 economists found 72 believe the Fed will keep rates unchanged through the end of 2026, and economists surveyed projected consumer inflation at 4.2% year-over-year last month, with the Fed's preferred PCE Price Index at 3.8% in April.

Attention now turns to Warsh's first post-meeting press conference, scheduled for 2:30 p.m. ET, where traders will look for further clues about the central bank's communication style and the path of policy under his leadership. Citadel has publicly warned about a potential rate hike by year-end, and the revised projections imply borrowing costs staying elevated well into 2027 and 2028. The combined message from the hold, the higher rate path, the absence of a 2026 cut, and a chair signaling less forward guidance is that the assumption of cheaper money returning later this year has, for now, run out of road.