During his inaugural Federal Reserve meeting, Kevin Warsh's influence was palpable. The central bank projected interest rates would remain above 5% through 2025, defying market expectations for a quicker pivot. The Federal Open Market Committee (FOMC) unanimously voted to keep the federal funds rate target range at 5.25%-5.50%, according to the New York Times. This decision was reinforced by the updated Summary of Economic Projections (SEP), which showed the median projection for the federal funds rate at year-end 2024 rising to 5.1%, up from 4.6% previously, according to the Federal Reserve. The upward revision of the median projection for the federal funds rate to 5.1% underscores a more aggressive stance than anticipated.

Market participants anticipated a softening in the Federal Reserve's stance due to moderating inflation, but the central bank delivered surprisingly hawkish projections. This marked Warsh's first FOMC meeting, and his historically hawkish views appear to be influencing the committee's forward guidance.

Companies and consumers should brace for a sustained period of tighter monetary conditions. This will likely dampen economic growth in the near term. The Fed is clearly committed to inflation control, even as new members shape its future direction.

The Fed's Unwavering Stance on Inflation

The Fed's 'dot plot' now indicates only two rate cuts in 2025, down from four projected previously, according to the Federal Reserve SEP. The reduction in projected rate cuts to two in 2025 signals a firm commitment to higher rates for longer.

  • Core Personal Consumption Expenditures (PCE) inflation is projected to remain above the 2% target until late 2026, according to the Federal Reserve SEP.
  • Unemployment rate projections for 2025 and 2026 were slightly revised upwards, indicating a willingness to tolerate some labor market softening, according to the Federal Reserve SEP.
  • Chair Powell emphasized in the press conference that 'the job is not yet done' on inflation, reiterating a data-dependent approach, according to the Chair Powell Press Conference.