Warsh’s debut Fed meeting marked by signals of possible rate hikes

Federal Reserve Chair Kevin Warsh kept interest rates unchanged on Wednesday but signaled that borrowing costs could rise later this year as policymakers remain focused on stubborn inflation.

The Federal Open Market Committee (FOMC) unanimously voted to keep its benchmark interest rate at 3.5%–3.75%, where it has remained since the central bank cut rates by 0.75 percentage points in late 2025.

Fed signals shift toward possible rate hike
The meeting marked Warsh’s first as Fed chair and brought a major policy shift. The bank’s closely watched “dot plot” no longer projects a rate cut in 2026. Instead, the median forecast suggests the benchmark rate could rise to 3.8% by year-end, indicating at least one possible rate hike. 

Of the 19 officials who submitted projections, nine expect at least one hike, eight see no change, and one expects a cut. This more than doubled the odds of two rate hikes in 2026, from 17% to 37%, according to CME Group data.

Inflation remains top concern
The Fed also released a much shorter policy statement, removing language that suggested future rate cuts. Officials raised their 2026 inflation forecast to 3.6% from 2.7% in March, while trimming GDP growth expectations to 2.2%. 

Warsh stressed that returning inflation to the Fed’s 2% target remains the central bank’s top priority, even as a resilient labor market and rising energy costs continue to complicate the policy outlook. 

Beyond interest rates, Warsh launched a comprehensive review of the Fed’s operations, including its communications strategy, inflation framework, balance sheet, data collection, productivity analysis, and labor-market assessments.

Breaking from tradition, Warsh declined to submit his own forecast, saying the dot plot is not helpful and confirming a broader review of the Fed’s communications strategy.

Wrapping up his first meeting, he said Fed officials believe the labor market remains solid, with unemployment holding steady at 4.3% since March and some measures appearing to improve.

Markets now expect the first rate hike to come as early as October.