Key Points

  • The Federal Reserve kept its key interest rate unchanged on Wednesday while removing language from its policy statement that hinted at a future bias toward rate cuts.
  • In the policy statement released after the two-day meeting, the Federal Open Market Committee voted 12-0 to remove the phrase about "further adjustments" to the key rate beyond multiple cuts from September 2024 to December 2025, which had appeared in its April 29 statement. Fed officials projected in the dot plot that the key rate, currently in the 3.5% to 3.75% range, would fall 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 driven up prices in certain sectors, including energy." At the end of the unusually brief statement, the FOMC hinted that the next rate move could be a hike, stating it "will achieve price stability."

Deeper Dive

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

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 suppress price pressures.

"For years, I've said that inflation is a choice," Warsh said. "Today, I'm 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 personal consumption expenditures index, excluding volatile food and energy prices—would reach 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 narrowing its communications, including "forward guidance," which consists of comments and quarterly economic projections aimed at influencing public views on the future direction of the central bank's decisions.

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 collection methods; productivity and employment, along with 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 some of the best minds, both inside and outside the economics profession," Warsh said.

"Their mission is clear: start from first principles, ask tough questions, examine current practices, consider alternatives, and ultimately make recommendations for next steps for policymakers," he added, saying he expects 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 due to the Middle East conflict," he said.

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

Warsh also said the labor market is showing signs of stabilization.

"I think the employment data have been moving in a good direction," he said.

"The committee sees the labor market as stable," Warsh said, adding that "there are some on the committee who see it improving."

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