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Federal Reserve · Inflation · Interest Rates · Monetary Policy
New Federal Reserve Chairman Kevin Warsh's first FOMC meeting saw a significant hawkish shift, as he eliminated forward guidance and an easing bias, leading to a market sell-off and an 86% probability of a rate hike by year-end.
The FOMC unanimously held rates at 3.5%-3.75%, but Warsh gutted the official statement to 132 words from 344 under Jerome Powell and declined to submit his own dot plot projection. The median fed funds rate projection for year-end rose to 3.8% from 3.4% in March, reflecting a committee split with nine officials seeing at least one hike.
Warsh also launched five task forces to review Fed operations, including communications and the inflation framework. The article, authored by Jeff Remsburg, emphasizes that the recent Iran peace deal only addresses headline inflation, not core PCE inflation, which stood at 3.1% before the conflict and remains well above the Fed's 2% target, driven by $2 trillion annual deficits and sticky services costs.
The labor market is tightening, with job openings per unemployed worker above 1.0 and May nonfarm payrolls jumping 172,000, further supporting a hawkish stance.
