At his first Federal Open Market Committee meeting as chairman, Kevin Warsh kept interest rates steady while sending markets into a tailspin with several unexpected moves.
The Fed voted to hold the benchmark federal funds rate in a target range of 3.5% to 3.75%, with no apparent dissents from committee members on the decision.
Despite the hold, the committee’s “dot plot” of future rate expectations pointed toward a hike later this year, rattling investors who had anticipated a more neutral outlook.
The FOMC split 9-9 between members expecting steady rates or one cut and those forecasting at least one hike, with the median projection pointing to a quarter percentage point increase.
One of the most anticipated questions heading into the meeting was whether Warsh would submit his own rate projection, and he confirmed he did not participate in the dot plot.
“I, however, have refrained from offering any projections of my own consistent with my long-held views on the SEP, at least as currently structured,” Warsh said at his post-meeting press conference.
Warsh announced the formation of five task forces charged with studying Fed communications, its balance sheet, data sources, productivity and jobs, the impact of artificial intelligence, and the central bank’s inflation approach.
On roughly a dozen occasions during the press conference, Warsh used the phrase “price stability,” striking a tone that analysts described as surprisingly hawkish given his prior comments on rate cuts.
Markets responded sharply to the inflation rhetoric, with the policy-sensitive 2-year Treasury yield jumping by 14.4 basis points as Warsh spoke.
The post-meeting statement itself was dramatically shorter than usual, running just 130 words compared to the more than 300 words that prior statements typically contained under previous Fed leadership.
Rick Rieder, head of fixed income at BlackRock, said “today we believe that the Federal Reserve’s FOMC ushered in a new era of monetary policy in the United States.”
Krishna Guha, head of central bank strategy and economics at Evercore ISI, observed that “new Fed Chair Warsh sounded a bit like old hawkish Fed governor Warsh at his press conference today repeating multiple times the need for the Fed to deliver on its mandate for price stability.”
Jason Pride, chief of investment strategy at Glenmede, noted that the task force announcements “signal an institution in active review rather than steady state, and investors should expect the operating framework of the Fed to look meaningfully different over Warsh’s tenure than it did under his predecessor.”
Dario Perkins, managing director of global macro at TS Lombard, offered a pointed summary of the session, saying “Warsh wants his first impression to be as ‘the reformer.’ We’ll see what that means later this year. In terms of the policy outlook, Fed watching just got harder.”