As expected, central bankers left interest rate policy unchanged and removed the dovish bias from their press release. But there was undoubtedly more to come… The statement is much shorter and focuses solely on price stability. It offers no forward guidance and no longer reveals how members voted on the decision. However, the real surprise in terms of its hawkish tone lay in the dot plot. Nine of the 18 FOMC participants indicated that at least one rate rise would be appropriate in 2026, whilst eight opted for no change and one for a cut.
One dot was missing: that of the new Fed chair, Kevin Warsh. Alongside this outlook on interest rates, the central bankers projected slower growth, higher inflation and a strong labour market in 2026. Furthermore, participants suggested that headline inflation would likely return to normal in 2027. However, the process would be more protracted for core inflation, pointing to structural factors beyond tariffs and energy prices and constituting a further restrictive factor.
During the press conference, Warsh reaffirmed the dual mandate and emphasised that the abbreviated statement only includes facts they can confirm, clearly implying that inflation is their primary concern. Regarding the SEP (Summary of Economic Projections) and the dot plot, Warsh clarified that he had not presented any forecasts and suggested that changes to the format are highly likely. The first of five working groups will address this issue. The working groups will include external experts and will examine possible changes to communication, the Fed’s balance sheet, data, productivity, employment and inflation. Warsh noted that changing the inflation target falls outside the scope of the review. Regarding possible rate rises, he pointed out that forward guidance had been removed and that monetary policy remains uneven across the economy, although overall it is still somewhat restrictive.
Regarding the forward guidance implied by the dot plot, he said he did not perceive strong conviction amongst his colleagues, who have been open to making changes. He added that a rate cut was briefly discussed at the meeting, but received limited support. When asked about long-term inflation trends — another potential dovish nuance — he again referred to the commitment to price stability and emphasised the need to avoid second- and third-order effects. As for the data, he appeared to favour real-time indicators and analytical methods over traditional, retrospective data, although this remains under review. When asked about the market reaction, he declined to comment, stating that markets should react to the data itself and not to how the Fed is likely to react to it, because that is when markets function best.
Warsh made several references to the upcoming working groups whilst answering questions, another way of avoiding providing forward guidance.
His brief mention of a rate cut was overshadowed by the tightening shift in the dot plot. Ultimately, the message is that the FOMC is divided between holding rates steady or raising them at least once. However, based on Warsh’s fact-based, forward-guidance-free approach to the Fed, this could change rapidly from one meeting to the next. There is a clear indication that inflation currently takes precedence over employment, and there are many factors at play. From past experience, we know that the new chair views inflation as a choice and recognises the role of the money supply – that is, the balance sheet.
A working group will likely determine this exact role. With Kevin Warsh as the new Fed chair, the institution is entering a new era defined by a shifting economic philosophy. It remains to be seen whether Warsh will adopt Alan Greenspan’s classical economic approach or develop a new style based on market efficiency and advanced data analysis. At the very least, the classical economic principle that only unanticipated policy changes have their full effect appears to be regaining relevance under Warsh. On this basis, we can reasonably conclude that the Fed will be much more agile, and that complacently listening to central bankers will no longer be effective. Today’s hawkish stance may become tomorrow’s dovish narrative. We reiterate our view that the Fed will keep rates unchanged in 2026 — at least for now.
