Key facts
- The Federal Reserve held its benchmark interest rate steady at 3.50%-3.75%.
- Policymakers now anticipate a rate hike by year-end, with median projections showing the federal funds rate at 3.8%.
- Inflation projections for year-end were revised upward, with PCE inflation expected at 3.6% from 2.7%.
- The FOMC statement removed forward guidance on future rate moves.
- New Fed Chair Kevin Warsh presided over his first policy decision and press conference.
The Federal Reserve held its benchmark interest rate steady at 3.50%-3.75% on Wednesday, signaling a potential rate hike later this year as policymakers grapple with inflation concerns. This decision, the first under new Chair Kevin Warsh, marks the fourth consecutive pause in rate adjustments.
Updated quarterly projections revealed a shift in sentiment, with nine of the nineteen FOMC participants now anticipating a rate increase by the end of the year. The median projection for the federal funds rate at year-end was revised upward to 3.8% from 3.4% in March. The Fed's preferred inflation gauge, Personal Consumption Expenditures (PCE), is now projected to reach 3.6% by year-end, an increase from the previous 2.7% forecast, though policymakers expect inflation to slow sharply next year.
In a notable change, the FOMC statement removed previous language that had signaled the likelihood of further rate reductions, opting for a more concise format that simply stated the decision and reaffirmed the commitment to maintaining ample reserves in the banking system. Fed Chair Kevin Warsh explained that the absence of forward guidance was due to the current economic conditions not being well-suited for such communication, emphasizing that future moves would be discussed at upcoming meetings.
The economic outlook saw a slight downgrade in GDP growth projections to 2.2% for the year, while the unemployment rate is expected to remain at 4.4%. Warsh highlighted strong productivity growth and capital investment as positive economic factors, while attributing elevated inflation partly to supply shocks in sectors like energy.