During its latest meeting, the Federal Open Market Committee (FOMC) unanimously voted to keep the benchmark overnight borrowing rate in the range of 3.5%-3.75%, unchanged since a reduction in late 2025. However, the meeting marked a significant change in tone, as the Fed removed previous language suggesting a bias towards future rate cuts, indicating a possible shift towards rate hikes.
The median projection for the federal funds rate by the end of 2026 rose to 3.8%, up from 3.4% in March, with nine out of 19 participants expecting at least one rate increase this year. Warsh, who has been critical of the Fed's forecasting tools, did not submit his economic projections, which has led to speculation about his future approach to communication and policy.
The FOMC's statement was notably concise, at just 130 words, compared to 341 words in the previous meeting, emphasizing a commitment to controlling inflation amid ongoing economic uncertainty, including the impact of geopolitical tensions.
The Fed's inflation outlook for 2026 was also revised upward, with expectations now at 3.6% for headline inflation and 3.3% for core inflation, while GDP growth projections were slightly lowered to 2.2%. The labor market remains robust, with nonfarm payrolls increasing by 172,000 in May and the unemployment rate steady at 4.3%.
Market expectations align with the FOMC's outlook, anticipating no cuts in 2026 and a potential quarter-point hike by year-end