Fed Holds Steady but Hawkish Tone Loud; New Chair Walsh Downplays Forward Guidance Importance

Special Topic: Fed Holds Rates Steady, Streamlines Statement to Remove Easing Bias

Fed Chair Walsh, at his first policy meeting since taking office, pledged to restore price stability. Earlier, Fed officials held rates steady and signaled support for a rate hike this year.

Walsh stated at the press conference: "Persistently high prices are a burden on Americans, but the past does not necessarily determine the future. Officials are clear and united, and the FOMC is committed to achieving price stability."

Meanwhile, Walsh downplayed the importance of his colleagues' latest rate forecasts. The dot plot showed 9 of 19 officials expect at least one 25bps rate hike this year, with 6 expecting at least two hikes. Another 9 officials expect rates to remain unchanged or be cut.

Walsh said: "Other officials are also not very confident about their forecasts, and many acknowledge high uncertainty in the economic outlook." When asked about the rate debate at this meeting, Walsh said the committee had a "healthy internal debate."

The new chair, a long-time critic of so-called "forward guidance," said he personally refused to submit a rate forecast.

The FOMC voted unanimously Wednesday to keep the federal funds rate target range at 3.5% to 3.75%.

After the decision, US Treasuries were sold off, the dollar rose, and stocks fell. Following Walsh's press conference, traders saw a 100% probability of a rate hike by October.

FOMC Statement

In the post-meeting statement, officials said inflation remains elevated and reiterated their commitment to achieving price stability.

They continued to describe economic growth as "solid." Officials also said productivity growth and capital investment are strong. The policy statement was more streamlined than previous ones. Given Walsh's promise to reform the Fed's communication strategy, this conciseness may signal a future change.

Walsh, who took office last month, promised to drive "institutional change" at the central bank. In his opening remarks, he announced the formation of several working groups to assess five areas of Fed operations and study possible reforms.

These working groups will study communication mechanisms, the balance sheet, the Fed's "use of and reliance on existing data sources," productivity and employment, and the central bank's "inflation framework." Walsh said the groups will bring in external experts and be supported by Fed staff.

In response to questions, he ruled out revisiting the 2% inflation target.

He said: "Until we have re-proven that we are capable and determined to achieve the 2% inflation target, I see no reason to revisit this issue."

Policymakers made several adjustments to the economic forecasts released in March, raising the median inflation forecast for this year from 2.7% to 3.6%, and the core inflation forecast for 2026 from 2.7% to 3.3%.

Meanwhile, officials lowered the median GDP growth forecast for 2026 from 2.4% in March to 2.2%. Their median unemployment rate forecast for end-2026 was lowered from 4.4% to 4.3%.

When asked about the Fed's decision to hold rates steady, Trump told reporters in France on Wednesday, "It's fine, whatever."

When asked about potential rate hikes, Trump said: "Unbelievable. It will only drag down the US economy, and it's very anomalous." But he added: "Now we have a very good person over there, and I will respect his opinion."