Federal Reserve Holds Rates at 3.50%–3.75% at Warsh's First Meeting, Signals Possible Hike Ahead

The Federal Reserve's June 17, 2026 policy meeting marked a turning point in US monetary policy, both substantively and stylistically. It was the first meeting chaired by Kevin Warsh, who succeeded Jerome Powell, and it produced a unanimous 12-0 vote to keep the federal funds rate unchanged at its 3.50%–3.75% target range — a level held since the Fed's three rate cuts in late 2025.

While the rate decision itself was widely expected, the accompanying Summary of Economic Projections delivered a hawkish jolt to markets. The median forecast for the federal funds rate at the end of 2026 rose to 3.8%, up from 3.4% in the March projections — signalling that the committee now sees at least one rate hike as likely this year. Of the 18 officials who provided forecasts, nine projected at least one hike in 2026, with six expecting two quarter-point increases. Just three months earlier, the average committee member had been projecting a rate cut. Markets reacted sharply: the Dow fell 507 points, the S&P 500 dropped 1.21%, two-year Treasury yields jumped 16 basis points to their highest level in over a year, the dollar strengthened about 1%, and gold fell more than 2%.

The driving force behind the hawkish shift is inflation. The May Consumer Price Index showed annual inflation running at 4.2% — the highest in more than three years — driven largely by the energy price spike that began with the onset of the Iran conflict in late February. Core CPI, which excludes food and energy, came in lower at 2.9%. Fed officials raised their headline inflation projection for 2026 to 3.6% (from 2.7% in March) while trimming GDP growth expectations to 2.2% and lowering the unemployment projection to 4.3%.

Warsh also moved quickly to put his own stamp on the institution. He dramatically shortened the FOMC's policy statement — which he described as 'curt' — removing prior language that signalled a bias toward future rate cuts. He declined to submit his own 'dot' to the dot plot, consistent with his long-standing skepticism of forward guidance, and announced five task forces to review core areas of monetary policy operations. Notably, President Trump — who nominated Warsh and had repeatedly criticized Powell over rate decisions — refrained from public criticism, telling reporters in Paris, 'We have a very good guy over there now.'