Federal Reserve Chair Kevin Warsh delivered a hawkish debut performance at his first policy-setting meeting. While the Federal Open Market Committee (FOMC) voted unanimously to hold interest rates steady, the Summary of Economic Projections (SEP) revealed a rapidly swelling rate-hike camp, jolting markets onto high alert over the future policy path.
On June 17, Eastern Time, the FOMC announced it would maintain the federal funds rate target range at 3.50% to 3.75%. Beneath the placid surface of the decision, however, powerful currents were churning. The dot plot disclosed at the meeting showed that nine of the 18 officials submitting projections expect at least one rate hike this year, creating a deadlocked 9-9 standoff against the nine who anticipate rates holding steady or moving lower. This hawkish tilt far exceeded market expectations; most institutions had previously estimated only a handful of officials held rate-hike views.
According to Wind Chaser Trading Desk, Warsh deliberately avoided any specific forward guidance during his inaugural press conference, bluntly stating he had "abandoned forward guidance." He stressed that "financial markets function best when they react to actual data, not to how the Fed might react to data." On inflation, Warsh's language was severe. Deutsche Bank tallied that he used the phrase "price stability" 12 times, and the policy statement was distilled to a single line: "The Committee will achieve price stability."
Dot Plot Deadlocked, Rate-Hike Camp Swells Dramatically
The June dot plot emerged as the meeting's most jarring signal. With Warsh himself not submitting a projection, the 18 forecasts formed a 9-9 equilibrium. Specifically, nine officials projected at least one rate hike, with five anticipating hikes of 50 basis points or more and one even projecting a 75-basis-point increase. Eight officials expected rates to remain unchanged, while one clung to a rate-cut outlook.
The upward revision to inflation forecasts was equally striking. The FOMC sharply raised its median projection for year-end 2026 Personal Consumption Expenditures (PCE) inflation to 3.6% from 2.7%, with the core PCE inflation forecast also climbing to 3.3% from 2.7%. Deutsche Bank noted that nearly all officials viewed inflation risks as tilted to the upside. Meanwhile, the median 2026 real GDP growth forecast was trimmed slightly to 2.2%, and the unemployment rate projection edged down to 4.3%, reflecting confirmation of economic resilience.
The market reaction was distinctly hawkish. According to multiple institutional reports, market pricing for the federal funds rate at end-2026 rose by roughly 20 basis points cumulatively following the statement release and press conference. The dollar strengthened, and the Treasury yield curve exhibited a distorted flattening.
Wall Street Banks: Hold-Steady Baseline Intact, But Hike Risks Upgraded in Unison
Despite the meeting's hawkish blare, major Wall Street institutions—including Goldman Sachs, Morgan Stanley, HSBC, UBS, Deutsche Bank, and Barclays—did not incorporate rate hikes into their baseline scenarios. However, they uniformly raised their assessments of future hike risks.
A Goldman Sachs report noted that the risk of rate hikes this year has risen, but the baseline case remains unchanged rates. The firm judged that a majority of the 12 voting members still lean toward holding rates steady. Goldman also highlighted that if geopolitical developments—such as an Iran deal and the reopening of the Strait of Hormuz—are confirmed, the primary source of upside inflation risk could dissipate quickly, potentially rendering the current dot plot forecasts obsolete.
Morgan Stanley maintained its forecast for unchanged rates this year and expects rate cuts to commence in March and June of next year, but emphasized this is a "very close call." The bank warned that if oil prices feed through to core inflation or the labor market tightens further, the Fed will not cut rates. Morgan Stanley's own core PCE inflation forecast for 2026 stands at 3.0%, notably below the Fed's 3.3% median—a key pillar supporting its baseline view.
HSBC's report was more conservative, extending its unchanged-rate forecast straight through the entirety of 2026 and 2027. The bank simultaneously noted that the hawkish SEP and tougher inflation rhetoric tilt the balance of risks toward further upside in short-end rates, and suggested the dollar may have already bottomed in 2026.
Deutsche Bank flagged a critical contradiction: a Fed that does not rely on forward guidance may be more nimble, creating conditions for rate hikes at upcoming meetings. Yet at the same time, hawkish signals coupled with diminished transparency could lead to a significant tightening of financial conditions, paradoxically constraining the near-term scope for hikes.
In a pre-meeting report, Barclays anticipated Warsh would strive to avoid conveying an excessively hawkish message, simply stating that the FOMC is closely monitoring the two-sided risks to its dual mandate. Michael Krautzberger, Chief Investment Officer for Public Markets at Allianz Global Investors, noted that Warsh inherits the most deeply divided FOMC in over 30 years. While traditionally known as an "inflation hawk," Warsh also firmly believes AI and productivity gains will drive inflation lower—a view not widely shared within the committee, which could complicate future policy discussions.
Five Working Groups Launched, Policy Framework Faces Overhaul
Warsh swiftly stamped his personal imprint on the meeting, not only by drastically compressing the policy statement and abandoning forward guidance, but also by announcing the formation of five working groups to initiate a systematic review of the Fed's policy framework.
The five working groups will respectively cover: Fed communications, the balance sheet, the use of and reliance on existing data sources, productivity and employment in an era of transformation, and the inflation framework. According to a UBS report tally, Warsh used the word "working group" 29 times during the press conference. He indicated the groups would launch "in the coming weeks," with most expected to conclude by year-end, and membership would include both internal Fed economists and external experts.
On communications, Warsh expressed skepticism about the value of the Summary of Economic Projections (SEP) and hinted that the frequency of future press conferences could be adjusted. A Morgan Stanley report noted that if the Chair himself does not endorse the SEP process, the framework's sustainability is in question, though other officials will continue submitting projections until the working groups reach conclusions.
On the balance sheet, HSBC's report pointed out that the policy statement's language on reserve management purchases was adjusted to occur "at the appropriate time," hinting at a more cautious stance toward expanding the System Open Market Account (SOMA) portfolio and leaving room for a future resumption of balance-sheet runoff.
On the inflation framework, Warsh made clear that the 2% inflation target itself would not be revisited until the Fed re-establishes its ability to achieve it.
David Chao, Global Market Strategist at J.P. Morgan Asset Management, believes the new policy framework Warsh has proposed faces significant headwinds for implementation this year. Elevated oil prices in the near term, AI infrastructure investment pushing up raw material costs and inflation, the U.S. government's desire to stabilize markets and the economy during an election season, and the continued presence of original governors like Powell—who may adhere to existing monetary policy thinking—all suggest Warsh's new approach may struggle to quickly achieve internal consensus.
Rate-Cut Expectations Pushed Back Across the Board, Uncertainty Envelops Markets
Following the meeting, major institutions broadly pushed back their timelines for rate cuts. Goldman Sachs Research significantly delayed its forecast for the final two rate cuts of this cycle, from the previously expected December 2026 and March 2027 to June and December 2027. Its chief U.S. economist, David Mericle, noted that U.S. economic activity and labor market data have been stronger than expected in recent months, with a particularly striking rebound in job growth.
UBS Wealth Management also postponed its next projected rate cut, from the previously expected December of this year to March 2027, followed by another cut in June of the same year. Barclays, meanwhile, expects the recent oil-price-driven inflation spike to be transitory, with inflation returning to near 2% in 2027, making a 25-basis-point cut in March 2027 plausible.
David Chao raised an even more extreme tail-risk scenario. He noted considerable uncertainty for 2027: if geopolitical conflicts ease and oil prices retreat, inflation could be relieved; but if trillion-dollar-scale AI infrastructure investment continues to drive up costs, the possibility of the Fed resuming rate hikes cannot be ruled out.
Warsh's debut delivered a clear yet uncertainty-laden signal to markets: the Fed will be resolutely data-dependent, refusing to be bound by any preset policy path. With the forces for hikes and cuts forming a delicate balance on the dot plot, every future economic data release could become a critical weight tipping the policy scales.
Once added, BigGo Finance appears first in Google Search Top Stories, so you get the broadest, most up-to-the-minute, and most comprehensive global financial news first.
