Everything is up for review. “There’s a taskforce for that,” he said. Dot plot, possibly the last one, turns hawkish.

By Wolf Richter for WOLF STREET.

Kevin Warsh presided over his first FOMC meeting as Fed Chair – participants voted unanimously to keep policy rates unchanged at 3.5%-3.75% – but already there was the beginning of “regime change.”

• The statement was sparse: one paragraph each on the vote, the economy, and inflation. Gone was the “easing bias” that had been in prior statements, or any trace of “forward guidance.”
• The Implementation Notes put the Reserve Management Purchases of T-bills possible on hold, switching the language to an “when appropriate” basis from an “increase…” basis in the prior Notes.
• Warsh kneecapped the Dot Plot by not submitting his own projections: 18 participants instead of 19. But 9 of those 18 participants see at least one rate hike this year.
• “We dropped forward guidance,” he said at the press conference.
• Everything is up for review. “There is a taskforce for that,” he said multiple times. The balance sheet size, communications, the whole bit, everything is up for review by a taskforce.
• “We made some changes today, I expect more changes to come,” he said.

Warsh had called for “regime change” at the Fed during the Senate Banking Committee confirmation hearing in April: Its operations and communications needed to be overhauled; less interventions in the financial markets; a smaller balance sheet; less communications and forward guidance; and fewer speeches over policy differences. He was critical specifically of the “dot plot” and other forms of “forward guidance.”

Last year, Warsh had argued that rate cuts were needed. But in the interim, things have changed: sharply accelerating inflation – driven by gasoline, electricity, and supercore services – and a labor market that has gained strength.

Gasoline inflation was driven by the war in Iran, and that part of inflation has already been fading for the past few weeks.

But some of this inflation has been driven by the massive AI investment boom, including in infrastructure and data centers, that is creating all kinds of supply bottlenecks and surging prices for semiconductors, even those that go into consumer electronics, and surging electricity rates for consumers.

Then there’s the mindboggling boom of tech stocks that have created enormous wealth, on paper, in a very short time, and some of the wealth is itching to get spent, and is getting spent.

So that’s the situation the Warsh Fed faces.

The new statement: short and sweet without easing bias.

The so-called easing bias in the statement was removed — the phrase, “additional adjustments to the target range for the federal funds rate” (meaning additional rate cuts). It had already been hotly contested at the last FOMC meeting. It’s also part of the forward guidance that Warsh so loathes.

Here is the entire statement:

“The Federal Open Market Committee approved the following statement for release by a 12 – 0 vote:

“The Committee decided to maintain the target range for the federal funds rate at 3-1/2 to 3-3/4 percent, in support of the Federal Reserve’s dual mandate. The Committee reaffirmed its policy of maintaining ample reserves in the banking system.

“Economic activity is expanding at a solid pace despite elevated uncertainty that owes, in part, to the conflict in the Middle East. Productivity growth and capital investment are strong. Job gains have kept pace with the workforce, and the unemployment rate has changed little.

“Inflation remains elevated relative to the Committee’s 2 percent goal, in part reflecting supply shocks that have driven price increases in certain sectors, including energy. The Committee will deliver price stability.

RMPs: The Implementation Notes:

The big change referred to the “Reserve Management Purchases,” where the Fed purchased Treasury bills to ease liquidity strains. Those RMPs ran at $40 billion a month through Tax Day, and were then reduced to $10 billion a month currently.

The Implementation Notes dropped the fixed purchase instruction and replaces it with “when appropriate.” This is the new language:

“When appropriate, increase the System Open Market Account holdings of securities through purchases of Treasury bills and, if needed, other Treasury securities with remaining maturities of 3 years or less to maintain an ample level of reserves.”

This replaced prior language: “Increase the System Open Market Account holdings of securities through purchases of Treasury bills ….”

Warsh kneecapped the “dot plot.”

Warsh did not submit his own projections, so there were only 18 dots for the 19 participants.

The dot plot is part of the “Summary of Economic Projections” (SEP), which the Fed releases four times per year, and today’s meeting was one of the four. The SEP is one of the ways with which the Fed communicates to the public what its thoughts are about the future of the economy, the labor market, inflation, and monetary policy – all of which are part of the Fed’s “forward guidance” that Warsh has criticized, and that is now getting dropped. So this might be last Dot Plot.

Of the 18 dots, 9 saw rate hikes by year-end:

• 1 sees 3 hikes
• 5 see 2 hikes
• 3 see 1 hike
• 8 see no change
• 1 sees 1 cut.

Inflation projections in the SEP:

• Headline PCE inflation by the end of 2026 rose to 3.6% from 2.7%.
• “Core PCE” inflation by the end of 2026 rose to 3.3% from 2.7% from 2.7%.
• Not hitting the 2.0% inflation target till 2028 (same as in prior SEP).

“Longer-run” (beyond 2028) projections for the federal funds rate remained at 3.1%.

GDP growth projections for 2026 declined to 2.2% from to 2.4%.

Unemployment rate projections unchanged: The median projection for the unemployment rate at the end of 2026 declined to 4.3% from 4.4%. These is a historically low unemployment rate.

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