Fed holds rates steady as Kevin Warsh drops forward guidance and signals hawkish bias

Forward Guidance Is Gone By Philip Marey, senior US strategist at Rabobank Summary As widely expected, the FOMC kept the target range for the federal funds rate unchanged and dropped its easing bias. However, this unanimous decision was announced in an unusually short statement. What’s more, at his first press conference as Fed Chair Kevin Warsh terminated forward guidance. However, the Summary of Economic Projections had already revealed that half of the FOMC participants (who submitted a forecast) expected to hike before the end of the year. Warsh did not submit his forecasts. Other interesting features of the statement were the reaffirmation of maintaining ample reserves and the conclusion that the Committee will deliver price stability. At the press conference, Warsh announced the establishment of five task forces on: Fed communications, the balance sheet, improving data, productivity and jobs, and inflation frameworks. As uncertainty regarding the disruption in the Strait of Hormuz remains, we expect the Fed to remain on hold for the remainder of 2026. Introduction As widely expected, the FOMC kept the target range for the federal funds rate unchanged at 3.50 3.75% and dropped its easing bias. However, this decision was announced in an unusually short statement. The decision was unanimous, with Miran – who repeatedly dissented because he wanted to cut – was replaced by Warsh. The press conference was a clear break from in the Bernanke-Yellen-Powell era, with Warsh making an end to forward guidance. FOMC statement and projections The statement was so short, that we replicate it here: The Federal Open Market Committee approved the following statement for release by a 12 – 0 vote: The Committee decided to maintain the target range for the federal funds rate at 3-1/2 to 3-3/4 percent, in support of the Federal Reserve's dual mandate. The Committee reaffirmed its policy of maintaining ample reserves in the banking system. Economic activity is expanding at a solid pace despite elevated uncertainty that owes, in part, to the conflict in the Middle East. Productivity growth and capital investment are strong. Job gains have kept pace with the workforce, and the unemployment rate has changed little. Inflation remains elevated relative to the Committee's 2 percent goal, in part reflecting supply shocks that have driven price increases in certain sectors, including energy. The Committee will deliver price stability. Most notably, the easing bias previously expressed in the statement as “In considering the extent and timing of additional adjustments to the target range for the federal funds rate…”., which suggested that the next change would be a rate cut -because the last three adjustments were rate cuts- was dropped. Other interesting features of the statement were the reaffirmation of maintaining ample reserves – despite Warsh’s earlier stated goal to reduce the balance sheet – and the conclusion that the Committee will deliver price stability. The new Summary of Economic Projections saw a large upward revision to the inflation forecasts for 2026 and core inflation in 2027. With minor changes to GDP and unemployment forecasts, the federal funds rate forecasts were revised upward in 2026, 2027, and 2028. In fact, the dot plot revealed that 9 out of 18 forecasting participants expected to hike before the end of the year. Warsh’s dots were missing. The median participant expects to get back to the current federal funds rate in 2027 and make another cut in 2028. This means we would have to wait at least until 2029 before the federal funds rate reaches its neutral level. Warsh’s press conference At the press conference, Warsh said that the FOMC recognized that inflation has been elevated for five years and that this Committee will deliver price stability. Warsh also announced the establishment of five task forces on: Fed communications, the balance sheet, improving data, productivity and jobs, and inflation frameworks. These task forces will include external experts. Warsh also said that the FOMC statement was shorter and simpler, and that forward guidance was absent, because it is not suited for the current circumstances. He also confirmed that he refrained from providing projections, but he encouraged others to give their projections. During the Q&A, he effectively terminated forward guidance. Any question regarding future policy decisions was deflected. He did say that financial markets work best if they react to the data and not to the Fed. WARSH: I THINK THAT MARKETS PERFORM BEST WHEN REACTING TO INCOMING DATA, THEY WORK LESS EFFICIENTLY WHEN THEY ASK HOW WILL THE FED REACT TO THAT INCOMING INFORMATION Finally, the 4th wall falls — zerohedge (@zerohedge) June 17, 2026 He also elaborated on his plans to improve the data: he prefers real-time data instead of echoes from history. He thinks current data are often based on old-fashioned survey methods. Conclusion Although Warsh ended forward guidance, the SEP remains in place at least until the task force on communication has completed its work, probably by the end of the year. Although half of the forecasting participants now expects to hike before the end of the year, it was only three months ago – and after the outbreak of the war – that the median participant still expected one cut in 2026. This proves Warsh’s point that projections may not be very useful in the current situation. As uncertainty regarding the disruption in the Strait of Hormuz remains, we expect the Fed to remain on hold for the remainder of 2026. We expect the Fed to cut twice in 2027, provided that inflation expectations remain stable. If not, we may also have to pencil in hikes. Tyler Durden Thu, 06/18/2026 - 12:00

NEW YORK: The Kevin Warsh era at the Federal Reserve began with a jolt on Wall Street, with investors bracing for sharp moves as the central bank pulls back from signaling possible future interest rate moves. The Fed held interest rates steady as expected on Wednesday, but new projections and comments from Warsh, who was presiding over his first meeting as chair, blindsided traders and led markets to price in a possible hike within months. Investors are now confronting a more opaque Fed under Warsh, one that is retreating from forward guidance and overhauling its messaging - a shift that could inject fresh volatility into markets. His first policy statement dropped guidance on the ‌future path of rates, while ⁠he signalled ⁠possible changes to how the Fed communicates, interprets data and approaches inflation. "He's hot out of the gate, and he's putting his thumbprint on everything Fed-related," said Michael Reynolds, vice president of investment strategy at Glenmede. MORE FED SURPRISES IN STORE? Investors had eagerly awaited Warsh's debut for clues on how the Fed might alter its operations under new leadership. One immediate change was a stripped-down monetary policy statement that omitted potential near-term actions, echoing the format used by former Fed Chairman Alan Greenspan who sat at the helm of the central bank from 1987 to 2006. "You are transitioning from what I believe was the most transparent Fed, who didn't like to deliver surprises or disappointments, to a less transparent Fed, who doesn't want to be boxed in or handcuffed to forward guidance that was given previously," said Michael Arone, chief investment strategist at State Street Investment Management. Warsh said financial markets should price securities based on their own reading of ⁠the economy rather ‌than trying to anticipate policymakers' views of the data. Markets have consistently priced in the Fed's moves with a very high degree of accuracy over the past 20 years, said David Seif, chief economist for developed markets at Nomura. "The simplification of communication could ultimately mean that this idea that has persisted for quite some ⁠time, that the Fed almost never surprises markets, could go away," Seif said. Warsh also announced a review of the Fed's operations, including its balance sheet, communications, data sources, productivity and jobs, and its inflation framework. "Both in what he said and really chose not to say showed to the market and to the Fed watching community that the way the Fed is going to communicate moving forward is going to change appreciably," said Joseph Purtell, a portfolio manager at Neuberger Berman. MARKETS PRIMED FOR INTEREST RATE HIKES AHEAD A more hawkish Fed could cool a long-running equity rally by lifting borrowing costs for companies and consumers, while driving up the dollar and bond yields. Markets entered 2026 pricing in more rate cuts, but that flipped after the late-February U.S.-Israeli war with Iran drove up energy prices and inflation, shifting bets toward a possible year-end hike. Recent data have shown inflation running well above the Fed's 2% annual target, a target that Warsh reaffirmed on Wednesday. Wednesday's meeting boosted the market's ‌hawkish bets. The Fed's quarterly projections showed nine Fed officials now anticipate a hike in rates by the end of 2026. Warsh's emphasis in a press conference on price stability was interpreted as hawkish by markets, said Josh Jamner, senior investment strategy analyst at ClearBridge Investments. Fed funds futures late on Wednesday suggested a better than even odds of a hike at the central bank's September ⁠meeting, according to CME FedWatch. "September now is very 'live' in terms of the possibility of seeing a rate hike, but if the June data is hot, I think they could hike as early as July," said Dustin Reid, chief strategist of fixed income at Mackenzie Investments in Toronto. Stocks pulled back from near record highs on Wednesday, with the benchmark S&P 500 ending down 1.2%. The two-year U.S. Treasury yield hit its highest level since February 2025, while the dollar strengthened across the board. However, some investors say the reaction to Wednesday's meeting may be overdone, saying they doubted that rate hikes were imminent. Warsh himself did not participate in the rate projections that precipitated some of the hawkish response. A key factor for investors was lower oil prices, with U.S. crude falling to roughly $75 a barrel by Wednesday in the wake of the U.S.-Iran deal over the weekend. "I don't think that this is necessarily as hawkish as people make it out to be because (Warsh) understands that gas prices will probably pull down overall inflation over time," said Drew Matus, chief market strategist at MetLife Investment Management in New Jersey.

"The Kevin Warsh Era Has Arrived With A Bang": Wall Street Reacts To Warsh's First FOMC Below is a snapshot of several kneejerk reactions from some Wall street economists, strategists and traders: Anna Wong, head economist at Bloomberg: “The Kevin Warsh era has arrived with a bang – in the form of a dramatically shortened FOMC policy statement and a dot plot that didn’t contain any dot from the chairman himself. That marks a break from the eras of former chairs Jerome Powell, Janet Yellen, and Ben Bernanke. But the rest of the committee sent an equally strong signal: They want rate hikes. Half of the committee penciled in hikes this year, while the other half anticipates holding rates steady or cutting once. That means Warsh could play a key role in influencing the direction of rates. We no longer expect the FOMC to cut rates by 25 basis points later this year.” Christopher Hodge, chief US economist at Natixis "Thinks this is overall a hawkish move -- rates steady, easing biased removed, no dissents. The statement, much shorter than previous statements, concludes with a commitment to delivery price stability….all in all, a hawkish statement... The statement, much shorter than previous statements, concludes with a commitment to delivery price stability…. all in all, a hawkish statement.”" Kay Haigh, Goldman Sachs Asset Management "Today’s meeting confirms that the Fed’s recent hawkish shift was not just about higher energy prices. Despite the recent pullback in oil, half of the members of the FOMC expect rate hikes as soon as this year, reflecting strong labor market and inflation data. Our base case remains that the Fed can just about avoid hikes, but the path is narrow and there will be a high premium on the incoming inflation data.” Ira Jersey, Bloomberg Economics “The market is focused on the dot plot for now, with half the committee thinking there will be hikes. The bear flattening seems reasonable based on that. Those who looked for a quiet first Warsh FOMC meeting must be disappointed. Warsh’s stamp on the statement seems evident, with language moving closer to the style used before the Global Financial Crisis. The effort to make the Fed less transparent may reduce day-to-day volatility, but it risks larger jumps when the Fed’s reaction function or economic data surprise markets... “We thought Warsh might be diplomatic in taking on his post as Fed chair, and the creation of these task forces allows for shifts in the way the central bank functions, while giving everyone within the building a voice and giving him a means to express his own views while assessing the those of others.”” Brian Jacobsen, chief economic strategist at Annex Wealth Management “Warsh turned the table over in the Eccles Building with a radical simplification of the Fed’s policy announcement. By doing this, he’s actually inviting more Fed-speak, not less. Now every Fed President will fill the gap left by the punchy policy announcement. This may backfire on Warsh.” David Wilcox, Bloomberg Economics:  "The committee reaffirmed its policy of maintaining ample reserves in the banking system. That’s notable, because the statement didn’t have to address it -- and analysts had been thinking one way Warsh could slim down the Fed’s balance sheet would be to revert from ample reserves to scarce reserves,” Wilcox said. “Today’s statement suggests they’re not doing that -- at least not right off the bat.” Marvin Loh, State Street “The biggest initial message from Warsh is that the commutations process is changing if we look at the wholesale changes to the policy statement. Bare bones is an understatement and for a market that has become accustomed to extensive Fed communications, we may need to read between the lines more closely with less lines available. We can now wonder how long the presser will last.” Florian Ielpo, Lombard Odier Investment Managers “The market moves reflect a repricing of Fed credibility and independence. Inflation is clearly back at the center of the reaction function of the central bank and someone is at its helm. This reinforces a higher-for-longer real rate environment.” Developing Tyler Durden Wed, 06/17/2026 - 14:48

Watch Live: Kevin Warsh's First Press Conference As Fed Chair Warsh's first press conference as Fed Chair is likely to be the most important event risk of the meeting. With The Fed leaving rates unchanged as practically 100% expected (with no dissents), and a very hawkish signal sent from the 'Dots', the question on everyone's lips is simple: "What Will Warsh Do?" (WWWD?) Will he shift to a cautiously hawkish path citing a resilient labor market, higher growth and soaring inflation... ...or will he reiterate the current easing bias as support for the lower leg of the 'K-shaped' economy (and what President Trump wants), looking through inflation fears (as the Iran MoU offered him a gift)? A dovish Warsh would be the surprise with the market more than fully-pricing-in one rate-hike this year: From a regime-change perspective, he is also expected to drop forward guidance on future Fed actions, even going so far as dropping the 'Dots' (and has been vocal about the size of the Fed balance sheet), which could raise uncertainty and this push bond vol higher. Amid all of this Bloomberg's Michael Ball says that, from a trading perspective, the curve-flattening case is straightforward: firm growth and sticky inflation keep Fed hiking risks alive at the front end, while fading energy-tail risks and a more independent-looking Warsh should reduce term premium farther out. A centrist, inflation-conscious Warsh is enough to flatten the curve further. Reporters will be asking about: a 'missing dot', a drastically more hawkish 'dots', a dramatically-shortened statement, and a clear hawkish bias (seemingly more focus on the inflation side of the maNdate more than employment). Watch Kevin Warsh's first press conference live here (due to start at 1430ET): Tyler Durden Wed, 06/17/2026 - 14:25

Fed Holds Rates Unchanged (As Expected), 'Dots' Signal Hawkish Bias As Warsh Takes Over Tl;dr: No rate change (as expected) but a dramatically hawkish shift in The Fed's bias (9 members seeing at least one hike this year). Statement smilled down dramatically, also biases towards hawkish focus on price stability (inflation) over employment: "The Committee will deliver price stability". “The market is focused on the dot plot for now, with half the committee thinking there will be hikes. The bear flattening seems reasonable based on that. Those who looked for a quiet first Warsh FOMC meeting must be disappointed.” - BBG rates strategist Ira Jersey *  *  * Since the last FOMC meeting (Jay Powell's final one as Fed Chair) on April 29th, markets have shifted sharply with oil plunging (along with weakness in gold and bitcoin) while stocks have rallied sharply (shrugging off a brief dip) with bonds unchanged and the dollar modestly stronger... The US macro-economic data has surprised considerably to the upside since the last FOMC (with strong 'hard' and 'soft' data and the labor market showing significant resilience)... With both Growth and Inflation signals rising (a dilemma for The Fed)... Additionally, the market has shifted significantly more hawkish since the last FOMC (still pricing cuts) and obviously dramatically more hawkish since the start of the war... But this Fed meeting is different as Kevin Warsh takes the mantle from Jay Powell (who remains on the board) as Fed Chair with the key risk for markets is that expectations for a dovish Warsh have become elevated. So What Did The Fed Do? The Fed left rates unchanged as expected: FED HOLDS BENCHMARK RATE IN 3.5%-3.75% RANGE IN UNANIMOUS VOTE NO DISSENTS And the statement was dramatically shortened, entirely dropping paragraph 4: FED REMOVES STATEMENT REFERENCE TO ADDITIONAL RATE ADJUSTMENTS No forward guidance in the statement Read the full red-line below: Balance Sheet The Federal Open Market Committee on Wednesday adjusted the language of its policy implementation note to reflect that it instructs the Open Market Desk at the New York Fed to increase its purchases of Treasury bills “when appropriate.” According to the implementation note FOMC instructed, “When appropriate, increase the System Open Market Account holdings of securities through purchases of Treasury bills and, if needed, other Treasury securities with remaining maturities of 3 years or less to maintain an ample level of reserves” That compares with the April memo, which said: “Increase the System Open Market Account holdings of securities through purchases of Treasury bills and, if needed, other Treasury securities with remaining maturities of 3 years or less to maintain an ample level of reserves” The 'Dots' The 'Dots' are clearly signaling an end to the 'easing bias' of the prior Fed: with nine members seeing at least one rate hike this year: 2026 dot distribution changes: 3 rate-hikes: from 0 to 1 2 rate-hikes: from 0 to 5 1 rate-hike: from 0 to 3 No rate change: from 7 to 8 1 rate cut: from 7 to 1 2 rate cuts: from 2 to 0 3 rate cuts: from 2 to 0 4 rate-cuts: from 1 (Stephen Miran) to 0 Only 18 of 19 officials submitted their 'dots' with some suggesting Warsh himself did not contribute Could this be the last time we see the 'Dots' (with Warsh's notable rejection of forward guidance)? Economic Projections The new inflation forecasts are really not good. Core PCE is seen rising 3.3% this year, well above the 2.7% penciled in back in March. That means no disinflation from right now, because the most recent core inflation reading was indeed 3.3%. But, the median forecast of those submitting projections shows inflation slowing to 2.5% next year, but still notably up on 2.2% last time. Growth is also seen slowing... ...but unemployment improving All eyes now on Warsh's first press conference as Fed Chair which is likely to be the most important event risk of the meeting. Will Trump react to the lack of a rate-cut? Will be ironic if Trump fires Warsh before EOD after he doesn't cut — zerohedge (@zerohedge) June 17, 2026   Tyler Durden Wed, 06/17/2026 - 14:05