Instant Reaction: The Fed Decides

**SPEAKER_1** (0:02)
Bloomberg Audio Studios, Podcasts, Radio, News.

**SPEAKER_2** (0:09)
This is a breaking news update from Bloomberg. Instant reaction and analysis from our 3,000 journalists and analysts around the world.

**Michael McKee** (0:19)
The Warsh Fed holds the benchmark rate to 3.5 to 3.75 percent. Significantly changes the statement and splits evenly over whether there will be a rate cut this year. They see a rate increase this year. They see one cut each in 2027 and 2028
Nine members see at least one increase this year with six of them seeing two moves, but nine see no moves or a cut. The median dot this year does move to 3.75 percent from 3.375 percent. However, for 2026, there are only 18 dots suggesting the Fed Chairman did not enter one. He said he doesn't believe in the dot plot. Two members did not submit a dot for 2028
The statement was cut to four paragraphs. The first, the vote unanimous, then the decision along with the statement that the committee reaffirmed its policy of maintaining ample reserves in the banking system. The second and third graphs are the economic assessment. Activity is expanding at a solid pace despite elevated uncertainty that owes, in part, to conflict of 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% goal, in part, reflecting supply shocks that have driven price increases in certain sectors, including energy. There is no balance of risks anymore. The statement concludes the committee will deliver price stability.
All 19 members of the committee did submit economic forecasts. GDP this year, 2.2% down 2 tenths from March. Unemployment will be 4.3% up a tenth. PCE headline inflation will come in at 3.6%, significantly increased from 2.7% in their March projection. Core, similarly, moves much higher to 3.3% from 2.7%.
Growth and unemployment for 2027 are unchanged from March, while PCE inflation falls back to 2.3% and Core to 2.5%. So some significant changes already under the Warsh Fed. We'll see what the Chair has to say coming up in about a half an hour.

**Lisa Abramowicz** (2:38)
Michael McKee, stay close. Definitely putting his mark on this Federal Reserve, just to underscore what Mike was just saying. It looks like potentially Fed Chair Kevin Warsh did not put a dot, that is speculation. There were only 18 dots. There are 19 members. There, and meanwhile, you're looking at nine of 18 FOMC participants penciling in a 2026 rate hike. When you take a look at what that is in markets, you can see a huge shift up in the two-year yield, a market shift of about seven basis points to 4.13%.
You could see stocks rolling over as this continues, people bleeding in the idea of a more hawkish central bank, given that an increasing number of Fed participants are looking at a rate hike this year. When you take a look at the NASDAQ, that is continuing to decline the S&P 500 down about half of a percent. Bob, what's your initial reaction given the fact this does seem to be a hawkish tilt on the committee and a very different statement?

**Bob** (3:38)
It is a hawkish tilt from the committee. Half of the committee is expecting rate hikes this year, which is, I think, a real shot across the bow to the market. We were thinking two, maybe three to be decorative. We didn't think half the committee. So, you know, it's something quite different.
When you look at the inflation projections, you know, we were thinking up a couple tenths. You're up six tenths, nine tenths for this year. So, nobody at the FOMC is thinking that this inflation will be transitory enough and we'll see disinflation between now and the end of the year. So, yeah, I think this is a Fed that is sending a hawkish message. I think you have a Fed chair telling us he can't be bothered with the dots. I think that's a slap across the face. We'll see how he deals with that and the Fed going forward.

**Lisa Abramowicz** (4:37)
Scarlet, it seems like this is a real change both in tone, both in substance, and frankly, it points to a hawkish committee and, as Bob said, a Fed chair that is doing away with the dots.

**Scarlet Fu** (4:47)
So, it will be really interesting to see how Kevin Warsh comes out and frames everything when he does begin speaking, because if he leans dovish, it will certainly be a case where he doesn't appear to be speaking on behalf of the committee. He's kind of speaking out there on his own, expressing his own views.