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The Federal Reserve held interest rates steady on Wednesday in Kevin Warsh’s first meeting as chair, but its newly released projections highlighted a committee split on whether to raise rates this year and showed policymakers debated a cut before settling on a hold.
The Federal Open Market Committee voted unanimously to keep its benchmark rate in a range of 3.5% to 3.75%. In the post-meeting statement, the Fed dropped its prior signal that cuts were coming and pledged to “deliver price stability.” The statement was about 130 words, down from 341 words the prior month.
Warsh, asked about the deliberations, described them as “a good family fight” that “ended up in a better place.”
Despite the unanimous vote, disagreement was evident in the Fed’s Summary of Economic Projections. Nine of the 18 officials who submitted forecasts penciled in at least one rate hike in 2026, with six expecting two or more. The other nine projected no change or a cut.
Warsh did not submit his own rate projection, breaking with the practice of recent chairs. The median path put rates at 3.8% by the end of 2026, 3.6% in 2027, and 3.4% in 2028.
Market reaction was swift. The two-year Treasury yield jumped about 10 basis points to roughly 4.15%, on pace for its largest move on a Fed day since January 2022, according to Bloomberg. The dollar rose, while gold fell about 2.2% (roughly $94) to about $4,236 an ounce after touching a session high near $4,383. The S&P 500 dropped as much as 0.5% before paring losses by the end of Warsh’s news conference.
Danielle DiMartino Booth, CEO of QI Research and a former adviser at the Federal Reserve Bank of Dallas, said the bond market reaction reflected “panic” and described the flattening of the yield curve as “nothing short of surreal.” She also pointed to stress building in the real economy, citing bankruptcies up 38.4% year over year.
In its forecasts, policymakers raised their median projection for inflation this year to 3.6% from 2.7% in March. They also lifted core inflation (excluding food and energy) to 3.3% from 2.7%. The unemployment rate was left near 4.3%, and growth was described as “solid.”
Warsh also announced task forces to review the Fed’s communications, balance sheet, data sources, productivity and jobs analysis, and inflation framework, with results due by year-end. He reaffirmed the Fed’s 2% inflation target.
DiMartino Booth said Warsh’s approach suggests a push for “a new way to measure inflation,” adding that the timeline for completing the task forces was “light speed.” She also argued that the market’s discomfort with the Fed dropping forward guidance and withholding Warsh’s own forecast was predictable, saying Wall Street is “absolutely addicted to forward guidance.”
DiMartino Booth framed gold’s decline as driven by the day’s mechanics—higher real rates and a stronger dollar—rather than a broader judgment on the metal. She noted that central banks are not selling.
She also pointed to leverage in markets, citing FINRA data that margin debt hit a record $1.42 trillion in May. In her view, that leaves investors more leveraged against their cash than at any point on record.
DiMartino Booth argued that if higher-for-longer policy helps trigger problems in private credit that spread into private equity, then the day’s move could be viewed as a “great buying opportunity for gold,” particularly during financial crises when gold can serve as “where to hide.”
She said cracks are already appearing, citing private credit “blowing up” and private equity following, with mounting losses tied to commercial real estate and borrowers unable to refinance. She added that a market accident could force the Fed’s hand faster than expected.
Asked for the single data point investors are overlooking, DiMartino Booth said the market should focus on “the volatility in the Treasury market right now,” warning that conditions are likely to be “very bumpy.”
Despite her cautions, she said she was encouraged by Warsh’s debut, describing it as resembling the “last chapter” of her 2017 book “Fed Up,” and saying the developments align with arguments she has made for a decade.
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