Briefing Overview

  • The Federal Reserve kept its key interest rate unchanged on Wednesday while removing language from its policy statement that had hinted at a future bias toward rate cuts.
  • In the policy statement released after its two-day meeting, the Federal Open Market Committee (FOMC) voted 12-0 to delete the reference to "additional adjustment" from its April 29 statement—language that had suggested the possibility of further changes to the key interest rate beyond the several cuts made between September 2024 and December 2025. Fed officials projected in their dot plot that the key rate, currently in the 3.5% to 3.75% range, would rise to 3.8% by year-end.
  • The FOMC noted that inflation remains above the central bank's 2% target, "partly reflecting supply shocks that have led to higher prices in certain sectors, including energy." At the end of the unusually brief statement, the FOMC signaled that the next move in rates could be upward, stating it "will achieve price stability."

In-Depth Analysis

The FOMC met for the first time under its new chair, Kevin Warsh. Warsh, nominated by President Donald Trump and sworn in last month, had previously echoed the president's calls for lowering the federal funds rate.

With war-driven inflation rising since February, Warsh shifted his tone at Wednesday's press conference, repeatedly stating that the Fed's monetary policy committee would push down price pressures.

"For years, I have said that inflation is a choice," Warsh said. "Today, I am announcing that this committee has made a clear and unanimous decision that we will deliver on our price stability mandate."

Fed officials projected that their preferred inflation gauge—the core personal consumption expenditures (PCE) index, which excludes volatile food and energy prices—would rise to 3.3% by the end of this year and fall to 2.5% by the end of 2027.

In congressional testimony and other public comments before his nomination late last year, Warsh also called for sweeping reforms at the central bank.

Warsh has advocated for shrinking the Fed's balance sheet and scaling back its communications, including "forward guidance"—comments and quarterly economic projections aimed at influencing public expectations about the central bank's future policy direction.

On Wednesday, Warsh announced the creation of five working groups that will review the Fed's practices in those two areas as well as three others: new data sources and data collection methods; productivity and employment, as well as artificial intelligence and other new technologies; and the forces driving inflation and methods to ensure price stability.

"For each independent working group, I will recruit the best minds from inside and outside the economics profession," Warsh said.

"Their mission is clear: to start from first principles, ask tough questions, examine current practices, consider alternatives, and ultimately recommend next steps for policymakers," he added, expecting the groups to deliver reports by 2027.

Warsh expressed optimism about U.S. economic growth. "Economic activity is expanding at a solid pace, despite elevated uncertainty, partly stemming from the Middle East conflict," he said.

Fed officials projected in their dot plot that the economy would grow 2.2% this year and 2.3% in 2027.

Warsh also said the labor market was showing signs of stabilization. "I think the employment data are moving in the right direction," he said.

Fed officials projected in their dot plot that the unemployment rate would be 4.3% at the end of this year and at the end of 2027, before falling to 4.2% by 2028.