The Federal Reserve left interest rates unchanged, while its officials were divided over expectations for rate increases this year. The Federal Open Market Committee (FOMC) unanimously voted to maintain the federal funds target rate in a range of 3.5% to 3.75%, marking the fourth consecutive decision to hold rates steady.
New forecasts from policymakers indicate that nine officials expect at least one quarter-point rate hike this year, while six officials anticipate at least two such hikes. Meanwhile, another nine officials expect no change or even a decrease in interest rates. Following the announcement, Treasury bonds were sold, the dollar strengthened, and stocks declined.
New Approach Under Chairman Worsa
The FOMC meeting was the first under the leadership of new Chairman Kevin Worsa, who joined the Fed last month, promising a “regime change”. Only 18 of the 19 officials submitted their forecasts for the end of 2026, likely reflecting Worsa’s refusal to provide a forecast, as he had previously criticized so-called “forward guidance” (predicting future central bank actions).
The statement after the meeting was shorter than previous ones, which may indicate changes under Worsa’s leadership, who promised to review the central bank’s communication strategy. In his introductory speech at his first press conference, Worsa announced the creation of several task forces to study five key areas: communication, balance, use of existing data sources, productivity, and the labor market, as well as the central bank’s “inflation framework”.
Meanwhile, Kevin Worsa ruled out the possibility of revising the Fed’s 2% inflation target. “I don’t see any reason, until we restore our commitment and ability to achieve the 2% inflation target, to revise it”, he said.
Revised Economic Forecasts
Federal Reserve officials continue to shift their concerns from the labor market to inflation, partly due to the impact of the war in Iran on energy prices. In their statement after the meeting, they noted that inflation remains high and promised to ensure price stability. Growth was characterized as “steady”, with productivity and investment growth described as “strong”.
Policymakers made several adjustments to the economic forecasts published in March, shortly after the conflict in the Middle East began. The median forecast for inflation this year jumped to 3.6% from 2.7% previously. The forecast for core inflation (excluding volatile food and energy categories) for 2026 rose to 3.3% from 2.7%.
Meanwhile, officials lowered their median growth forecast for 2026 to 2.2% from 2.4% predicted in March. The median unemployment forecast for the end of 2026 fell to 4.3% from 4.4% previously.
Source: Bloomberg