The Federal Reserve held interest rates steady Wednesday in Kevin Warsh's first meeting as chair, with a unanimous vote masking a sharply divided committee over whether to raise rates this year. The Federal Open Market Committee kept its benchmark rate in a range of 3.5% to 3.75%, dropped its signal that cuts were coming next, and shortened its post-meeting statement by roughly 62% to about 130 words from 341 the prior month. Policymakers debated a rate cut before settling on a hold, according to the newly released projections. The accord came despite deep disagreement: nine of the 18 officials who submitted forecasts penciled in at least one rate hike in 2026, while the other nine saw no change or a cut. Danielle DiMartino Booth, CEO of QI Research and former adviser at the Federal Reserve Bank of Dallas, called the unanimity "absolutely shocking" and credited Warsh for rallying the committee.
Fed Holds Rates at 3.5%-3.75% in Warsh's First Meeting
The Federal Open Market Committee voted unanimously to keep its benchmark rate in a range of 3.5% to 3.75% and pledged to "deliver price stability." The post-meeting statement ran about 130 words, down from 341 the prior month - a roughly 62% cut. Warsh described the deliberations as "a good family fight" that "ended up in a better place."
DiMartino Booth said in an interview with Kitco News: "You have to give Kevin Warsh credit, because he had a unanimous vote. That was absolutely shocking."
Committee Splits on 2026 Rate Path in New Projections
In the Fed's Summary of Economic Projections, nine of the 18 officials who submitted forecasts penciled in at least one rate hike in 2026, with six expecting two or more. The other nine saw no change or a cut. Warsh declined to submit his own rate projection, breaking with the practice of recent chairs. The median path put rates at 3.8% by the end of 2026, 3.6% in 2027 and 3.4% in 2028.
Policymakers raised their median projection for inflation this year to 3.6% from 2.7% in March, and lifted core inflation to 3.3% from 2.7%. They left the unemployment rate near 4.3% and described growth as "solid."
Treasury Yields Jump 10 Basis Points as Markets Sell Off
The two-year Treasury yield jumped about 10 basis points to roughly 4.15%, on pace for its largest move on a Fed day since January 2022, according to Bloomberg. The dollar rose and gold fell about 2.2%, or roughly $94, to about $4,236 an ounce after touching a session high near $4,383. The S&P 500 dropped as much as 0.5% before paring its losses by the end of Warsh's news conference.
DiMartino Booth said: "That was the panic we saw in the bond market today. To have seen a flattening of the yield curve to the extent that we did was nothing short of surreal." She pointed to stress already building in the real economy, citing what she said were bankruptcies up 38.4% year over year.
Most Wall Street economists still expect the Fed to stop short of raising rates. Kay Haigh of Goldman Sachs Asset Management said his firm's base case is that the central bank "can just about avoid" hikes, though "the path is narrow."
DiMartino Booth Credits Warsh for Unanimous Vote
DiMartino Booth said Warsh likely found it easier to rally the committee than many expected: "So many officials at the Fed have known for a very long time that QE was a disaster, that using the balance sheet as a tool was a failed experiment, and that Fed speakers speak too much. A lot of them today were secretly rubbing their hands together and saying, 'God, I've been waiting my entire career for this to happen. Let's do it.'"
She added that some longtime officials welcomed a return to a leaner, quieter Fed: "I suspect that some of the gray hairs in the audience - including Jay Powell - were probably barking like a seal with happiness that he wanted to go back to being a more succinct institution that leaks less."
Warsh Announces Task Forces with Year-End Deadline
Warsh announced task forces to review the Fed's communications, balance sheet, data sources, productivity and jobs analysis, and inflation framework, all to conclude by year-end. He affirmed the 2% inflation target.
DiMartino Booth said: "He wants to look for a new way to measure inflation, period. He says these task forces will be completed by the end of the year at the latest. As a former Fed insider, that is light speed. He's moving to initiate changes within the Fed at the fastest pace in the history of an institution born in 1913."
On the new chair's decision to drop forward guidance and withhold his own forecast, she said: "Wall Street is absolutely addicted to forward guidance. Less guidance is absolutely more critical." The remark she valued most, she said, echoed his predecessor: "We don't care how the markets react. We are going to act and think independently of them."
Warsh offered a split read on whether policy is restrictive, she noted: "He basically said, when asked, 'Is policy tight?' --- 'It depends.' If it's the housing sector, clearly. If it's the financial markets, policy is clearly not restrictive."
Gold Falls $94 Amid Higher Real Rates and Stronger Dollar
DiMartino Booth framed gold's drop as a function of the day's mechanics - higher real rates and a stronger dollar - rather than a verdict on the metal, noting that central banks are not selling. Margin debt hit a record $1.42 trillion in May, according to FINRA data, leaving investors more leveraged against their cash than at any point on record.
"If Warsh is going to be the new sheriff in town and maintains higher-for-longer, and thereby helps facilitate a blowup in the private credit market that bleeds into the private equity market, then yes, this was a great buying opportunity for gold," she said. "It doesn't matter where inflation is per se, because in times of financial crisis, gold is where to hide."
She argued the cracks are already showing: "Private credit is already blowing up. Private equity is following it," she said, pointing to mounting losses on commercial real estate and borrowers unable to refinance.
Asked for the single data point investors are overlooking, she said: "The market should be paying very close attention to the volatility in the Treasury market right now. Things are going to be very bumpy."
DiMartino Booth said she came away encouraged: "I'm hopefully optimistic," she said, adding that Warsh's debut "closely resembles the last chapter of 'Fed Up,'" her 2017 book. "These are things I've been arguing for, for a decade now."
FAQ
What did the Federal Reserve do in Kevin Warsh's first meeting as chair?
The Federal Reserve held interest rates steady in a range of 3.5% to 3.75% with a unanimous vote. The Federal Open Market Committee dropped its signal that cuts were coming next and shortened its post-meeting statement by roughly 62% to about 130 words from 341 the prior month.
How did the Fed committee split on future rate projections?
In the Fed's Summary of Economic Projections, nine of the 18 officials who submitted forecasts penciled in at least one rate hike in 2026, with six expecting two or more. The other nine saw no change or a cut. The median path put rates at 3.8% by the end of 2026, 3.6% in 2027 and 3.4% in 2028.
How did markets react to the Fed's rate decision?
The two-year Treasury yield jumped about 10 basis points to roughly 4.15%, on pace for its largest move on a Fed day since January 2022 according to Bloomberg. Gold fell about 2.2%, or roughly $94, to about $4,236 an ounce. The S&P 500 dropped as much as 0.5% before paring its losses by the end of Warsh's news conference.
