Fed Holds Unanimously but Dot Plot Splits Down the Middle — Half Now See Rate Hikes Ahead

Updated at 3:15 p.m. ET to include Chair Warsh's remarks at the post-decision press conference and analyst commentary.

The Federal Reserve’s rate-setting committee — the Federal Open Market Committee (FOMC) —, on Wednesday announced that it decided to keep the benchmark interest rate unchanged at current levels. The verdict to hold the Fed funds rate was adopted unanimously.

Following the decision, the S&P 500 Index, which moved nervously around the flat line ahead of the decision, retreated. The focus now shifts to Warsh's press briefing, scheduled for 2:30 p.m. ET.

Hold It is At Warsh's First Meeting

Source: TradingView

Breaking Down the Policy Statement

The accompanying statement was briefer this time around and did not include forward commentary.

• Fed’s commentary regarding the economic activity was unchanged: “expanding at a solid pace.”
• Job market commentary was tweaked:
  • job gains have kept pace with the workforce| job gains have remained low
  • The phrase "unemployment rate has changed" was maintained, although the timeframe of "in recent months" was dropped."
• Inflation commentary: Inflation was qualified as "elevated" as in the previous meeting, although it was mention in relation to the Fed's 2% inflation goal. The central bank attributed the inflation in part to "supply shocks that have driven price increases in certain sectors, including energy. "

The FOMC dropped the commentary on the economic outlook and the statement regarding future rate moves but said "The Committee will deliver price stability." LPL Financial Chief Economist Jeffrey Roach sees this as hawkish delivery.

Inflation Projection Raised

The Fed’s updated Summary of Economic Projections (SEP) inflation forecast for the near- and medium-term nudged higher.

• 2026 Price Consumption Expenditure (PCE) inflation seen at 3.6% (up from March projection of 2.7%); Core PCE inflation up to 3.3% from 2.7%
• 2027 PCE inflation at 2.3%, up from the 2.2% previous projection; Core inflation up to 2.5% from 2.2%
• 2028 PCE inflation estimate unrevised at 2%; Core PCE inflation nudged up to 2.1% from 2%

The median Fed funds rate projection for 2026 is at 3.8%, up from the current 3.50%-3.75% rare and higher than the March projection of 3.4%. The rate projections for 2027 and 2028 was lifted to 3.6% and 3.4%, respectively, from 3.1% for both years seen previously. The central bank, however, expects the Fed funds rate to settle at a neutral 3.1% level in the long run.

The GDP growth forecast for 2026 was lowered to 2.2% from 2.4% estimated in March, while the forecast for 2027 was left unrevised at 2.3%.

The dot plot charting showed that out of the 18 policymakers (including voting and non-voting members), 9 forecast rates interest rate hikes ranging from 0.25% to 0.75%. Meanwhile, in the April meeting, none anticipated a rate hike. Incidentally, Warsh refrained from issuing a forecast.

Source: Federal Reserve

Economist Mohamed El-Erian said Warsh's impact is already visible in Wednesday's communication., significantly more concise. LPL's Roach saw the likely return to the Alan Greenspan era when FOMC statements were "deliberately minimalist, opaque (“constructive ambiguity”), and focused on actions, not explanations. "

"The biggest factor driving uncertainty is the Middle East war so once that is past, we can focus on the persistency of capital investment and ensuing productivity gains which currently implies the economy is growing close to trend," he added.

What Warsh's Press Briefing Revealed

The new Fed chair explained the reason for the brevity of the post-meeting policy statement. "It’s a bit shorter, a bit simpler and it dispenses with some older language,” he said, adding that “That statement just gives you the facts, as best we can judge it.”

He attributed the lack of forward guidance to the thinking that that it was not well suited to the current policy conjecture.

Warsh announced the formation of five task forces, focusing on communications, the Fed's balance sheet, its reliance on data sources, productivity and jobs in an era of artificial intelligence and transformative technologies, and inflation framework.

Lloyd Financial Chief Investment Officer Colin Symons said the big focus is now on price stability. "Ultimately, Warsh is trying to change the Fed, making it less academic and more market-oriented, considering future possibilities instead of a slavish focus on the rearview mirror of old data," the strategist said.

Looking Ahead..

Warsh's first meeting as Fed chair points to a leaner, less prescriptive central bank focused squarely on its core mandate. With inflation projections marked sharply higher, a dot plot evenly divided between holders and hikers, and forward guidance deliberately stripped from the statement, the Fed has signaled that uncertainty, and not accommodation, is the defining condition of this policy cycle.

The five task forces announced Wednesday suggest Warsh is also preparing the institution for a longer-term structural reset. For markets, the immediate question is no longer whether the Fed will cut but it is whether the energy-driven inflation shock proves transitory enough to prevent the hiking camp from gaining the upper hand. That answer, Warsh made clear, will be found in the data, not in the statement.