New Federal Reserve chair Kevin Warsh has opened his tenure by sending a clear signal that the Fed is changing and declining to submit dot plot forward guidance.
At his first meeting on 17 June, the FOMC held the benchmark rate at 3.5 per cent to 3.7 per cent range in a unanimous vote. In response, Wall Street stocks closed lower, the dollar gained, gold fell, and Treasury yields rose.
Speaking in his first post-rate decision press conference, Warsh said the FOMC recognises that inflation has been running well ahead of the Fed’s long-stated inflation goal of two per cent that’s been going on for more than five years.
“Persistently high prices are a burden for the American people.” He continued, “This committee will deliver price stability.”
Warsh declined to submit inputs into the dot plot, breaking with convention in a symbolic first act, although the other 18 FOMC members did submit forecasts with a ‘striking’ change in their distribution.
Half of the FOMC participants are now pencilling in a 2026 rate hike, compared to none at the March meeting, with six of those anticipating 50 basis points or more of tightening this year. The market responded by pricing in a 25 basis point hike for the October 2026 meeting.
Markets are now pricing in a 25 basis point hike for the October 2026 FOMC meeting. Underpinning the hawkishness is a materially higher inflation outlook: core PCE forecasts moved to 3.3 per cent for 2026 and 2.5 per cent for 2027, up from 2.7 per cent and 2.2 per cent respectively.
Warsh said: “This afternoon you also received the usual Summary of Economic Projections (SEP). It’s been the practice of this committee for participants to submit these projections, and I have encouraged my colleagues to continue to do so. 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.”
He also announced the appointment of a task force in each of five areas that are central to the broad conduct of monetary policy: Fed communications; Fed’s balance sheet policy; Fed’s use and reliance on existing data sources; productivity and jobs in an era of transformation; and the Fed’s inflation frameworks.
“These subjects are timely, consequential, and in my view worthy of a fresh look,” Warsh added.
Market reaction
Ninety One’s co-CIO Peter Kent said the new face of the FOMC wasted little time signalling the scope of his ambitions for the institution.
“The reformed FOMC statement was notably leaner than its predecessors, closing with a pointed declaration: ‘The committee will deliver price stability’. That left little room for ambiguity about where his priorities lie,” Kent said.
“While the Fed’s dual mandate formally encompasses both employment and inflation, Warsh trained his focus firmly on the latter.”
Kent noted that every incoming Fed chair must establish their inflation-fighting credibility early.
“Warsh did that and more,” he said.
Tai Hui, APAC chief market strategist at J.P. Morgan Asset Management
Looking ahead, chief US economist at T. Rowe Price, Blerina Uruci, said the new set of economic projections will likely show the median path of interest rates slightly higher for this year and next in response to increased upside risks to inflation from elevated energy prices.
“In addition, since the Quarterly Census of Employment and Wages (QCEW) data for Q4 2025 showed a modest upside revision to non-farm payrolls last year and recent payroll data have also surprised to the upside, risks to the labour market are more balanced,” she said.
“This again supports removing the easing bias from the immediate policy statement. I expect Warsh will also talk about his vision for reforming the Fed’s communication and balance sheet strategies at the press conference. This will be a starting point of the project, however, rather than give us a full view on what is likely to happen.”
Against this backdrop, T. Rowe Price expects the Federal Reserve to remain on hold over the coming year.
“While markets continue to focus on the possibility of rate cuts, resilient growth and lingering inflation pressures suggest policymakers are likely to remain patient. In fact, if inflation surprises to the upside, the risk of further tightening may be greater than many investors currently appreciate,” Uruci said.
This environment also reinforces T. Rowe Price’s view that Treasury yields could move higher over time as stronger growth and persistent inflation reassert themselves as the dominant drivers of markets.
At the same time, renewed US exceptionalism, supported by stronger relative growth and higher real yields, has improved the outlook for the US dollar.
“Overall, our base case remains one of continued US economic expansion. The combination of resilient demand, improving productivity, and a powerful AI-driven investment cycle may provide a constructive backdrop for growth, even as inflation and policy uncertainty remain important risks to monitor,” Uruci said.
J.P. Morgan Asset Management agrees and APAC chief market strategist, Tai Hui, said the firm continues to expect no rate adjustments from the Fed this year, “as the committee appears comfortable remaining patient given where policy rates are.”
He added, “While there will likely be changes to the Federal Reserve under this new Warsh regime, the central bank’s dual mandate of price stability, maximum employment, and its use of the Federal Funds rate as its primary policy tool appear cemented.”
