(Kitco News) – The Federal Reserve announced on Wednesday that the first Federal Open Market Committee (FOMC) vote under new chair Kevin Warsh was unanimous in favor of a rate hold, as expected by the market consensus, while the latest economic projections showed nearly half of policymakers believe a rate hike will be warranted in 2026.
“The Committee decided to maintain the target range for the federal funds rate at 3-1/2 to 3-3/4 percent, in support of the Federal Reserve's dual mandate,” the Federal Reserve said in their statement. “The Committee reaffirmed its policy of maintaining ample reserves in the banking system.”
“Economic activity is expanding at a solid pace despite elevated uncertainty that owes, in part, to the conflict in the Middle East,” the central bank said. “Productivity growth and capital investment are strong. Job gains have kept pace with the workforce, and the unemployment rate has changed little.”
“Inflation remains elevated relative to the Committee's 2 percent goal, in part reflecting supply shocks that have driven price increases in certain sectors, including energy,” the statement acknowledged. “The Committee will deliver price stability.”
The Fed statement did not include any guidance about future rate moves.
All 12 FOMC members voted in favor of maintaining rates unchanged, including newly appointed chair Kevin Warsh as well as Trump’s second-term appointee Stephen Miran, who has dissented in favor of a rate cut at every prior meeting since joining the FOMC.
Gold prices dropped sharply in the wake of the announcement, with spot gold last trading at $4,290.52 per ounce for a loss of 0.94% on the session.
The unanimity displayed at today’s meeting is unlikely to persist, however, as the Fed’s latest Summary of Economic Projections (SOP) showed that nine of the central bank's 19 policymakers expect that a rate hike will be necessary in calendar year 2026.
None had that view just three months ago, when the Fed last published its projections. At the time that the March SOP was published, none saw a rate hike this year. Moreover, six out of the nine – nearly one-third of the committee – believe one quarter-point rate hike will not be enough to get inflation moving sustainably back toward the Fed’s 2% target.
Eight Fed policymakers indicated they expected rates would remain unchanged, while only one believed a single rate cut would be justified in 2026.
One policymaker did not submit their view on the projected rate path, and though they were not named, the abstainer is widely believed to be Warsh, as he has been a frequent critic of the forward guidance included in the Fed's forecasts.
Chris Zaccarelli, Chief Investment Officer for Northlight Asset Management, told Kitco News he believes Warsh has the tools to tackle inflation without hiking rates.
"Very few people have mentioned the idea of significantly reducing the Fed balance sheet – defacto tightening – while simultaneously cutting interest rates, because at face value it seems contradictory," he said. "But if your goal is reduce (short-term) interest rates – or keep them unchanged in the face of compelling reasons to raise them, such as much-too-high inflation – while slowing financial markets down so they don’t overheat, you can simultaneously slam on the brakes (significantly reduce the balance sheet) and slowly hit the gas pedal (lower interest rates slowly) and achieve both goals in a less obvious way."
Jeffrey Roach, Chief Economist for LPL Financial, said market participants should expect Fed statements to be short and sweet going forward..
"We are going back to the days of Alan Greenspan when FOMC statements were deliberately minimalist, opaque (“constructive ambiguity”), and focused on actions, not explanations," he said. "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 imply the economy is growing close to trend."
