Fed Chair Warsh’s first meeting removes rate-cut language and lifts 2026 funds rate forecast above current levels, spurring USD rally.
The Federal Reserve held its target rate at 3.50% to 3.75% but delivered a hawkish shift, sending the US Dollar Index above 100.00 for the first time in months. The decision was unanimous, a sharp turn from April’s 8-4 split, and stripped out all easing bias language, replacing it with a pledge to ensure price stability.
The Summary of Economic Projections showed the median 2026 federal funds rate rising to 3.8%, a quarter point above the current range. Inflation forecasts surged, with 2026 PCE jumping to 3.6% from 2.7% and core PCE to 3.3%, signaling persistent price pressures despite lower oil prices.
Markets reacted swiftly, with the DXY breaking above key resistance as traders priced in a higher-for-longer rate outlook. The shift underscores the Fed’s focus on combating inflation over near-term growth concerns.