NEW YORK, June 17 (Reuters) - The Federal Reserve held the benchmark interest rate steady on Wednesday and policymakers expect rising borrowing costs later this year, reflecting growing concerns about inflation above the U.S. central bank's 2% target.
New quarterly projections showed nine Fed officials now anticipate a rate hike by the end of 2026, and an updated policy statement removed language that had been used to flag the likelihood of further reductions in borrowing costs in 2026.
With data showing
strong U.S. hiring, a relatively low 4.3% unemployment rate, and inflation well above the U.S. central bank's 2% target, many analysts had anticipated the Fed would hold rates steady on Wednesday.
"Attention will rest squarely on Chair Warsh’s debut press conference," said JPMorgan analysts Jay Barry and Jason Hunter.
MARKET REACTION:
STOCKS: The S&P 500 was down 0.6% after the policy statement. The Dow industrials were off 0.2% and the Nasdaq Composite was 0.6% lower.
BONDS: The yield on benchmark U.S. 10-year notes rose 3 basis points to 4.46%. The yield on 2-year U.S. notes rose 9 basis points to 4.138%.
FOREX: The dollar index was up 0.5% to 100.03.
COMMENTS:
TOM GRAFF, CHIEF INVESTMENT OFFICER, FACET, PHOENIX, MARYLAND:
“While the Fed officially made no changes to their rate target today, there has clearly been a big shift. The most notable was the dot plot, where half of FOMC members penciled in at least one hike for the remainder of 2026, while only one member favored a cut. That's a marked change from the last dot plot where the median forecast was for cuts.
“We also got our first taste of how Kevin Warsh will handle communication. The post-meeting statement was much more concise, and included only a cursory discussion of the economy. In terms of future rate decisions, the statement only said that ‘The Committee will deliver price stability.’
“Overall, this is clearly a bit more hawkish than the market was expecting.”
BRIAN JACOBSEN, CHIEF ECONOMIC STRATEGIST, ANNEX WEALTH MANAGEMENT, BROOKFIELD, WISCONSIN:
"Warsh turned the table over in the Eccles Building with a radical simplification of the Fed’s policy announcement. By doing this, he’s actually inviting more Fed-speak, not less. Now every Fed President will fill the gap left by the punchy policy announcement. This may backfire on Warsh."
RYAN DETRICK, CHIEF MARKET STRATEGIST, CARSON GROUP, OMAHA, NEBRASKA:
“It doesn't look like Warsh rocked the boat too much with his first meeting in charge. The realization is inflation has clearly been heating up, but the other side is the economy has been fairly firm as well. The chances are, as was widely expected, that there's probably not going to be a rate cut this year. This further confirms that. Now the question becomes, will we really see a hike or is the Fed on pause the rest of this year?”
MATTHIAS SCHEIBER, HEAD OF THE MULTI-ASSET TEAM AT ALLSPRING GLOBAL INVESTMENTS, LONDON:
"The consumer has surprised to the upside, maintaining robust growth of around 2% quarter over quarter but with a falling savings rate. Growth expectations have begun to reprice higher, with investment and consumption both balanced nicely. Inflation, on the other hand, has proved stubborn and is likely to continue to pick up from here. Tariff uncertainty remains, including a small left tail risk that a 'resolution' in the geopolitical backdrop could open a flood of demand.
"The Fed’s balance sheet remains a central question and will increasingly be in focus over the next few Fed meetings. Markets will continue to watch the chair as he implements his vision for the FOMC, which may see subtle shifts in the communications process and provisioning of data. The market will be keenly looking for these signals."
KARL SCHAMOTTA, CHIEF MARKET STRATEGIST, CORPAY, TORONTO:
"This Fed decision was short, but not sweet. Kevin Warsh moved swiftly to put his stamp on the central bank’s communication strategy by executing a dramatic revision to the official statement, wiping out anything resembling forward guidance and editing out the bulk of the contextual information typically parsed most closely in financial markets.
"The committee turned sharply hawkish, with the median participant yanking inflation projections much higher—suggesting that officials don’t expect this weekend’s US-Iran deal to result in a serious easing in price pressures—and penciling in at least one hike this year, marking a stark contrast with the cut previously expected."
MARK HACKETT, CHIEF MARKET STRATEGIST, NATIONWIDE INVESTMENT MANAGEMENT, PHILADELPHIA:
“So far, as expected – incrementally hawkish with a less detailed statement. Initial market reaction has not meant much in the past several years. We will need to wait for the press conference. They telegraphed the significant changes to the statement, and dropping the easing bias was expected. It’s interesting that gold is having the most significant reaction to what should not have been a surprise.”
(Reporting by Laura Matthews, Stephen Culp, Chibuike Oguh, Saqib Ahmed; editing by Colin Barr)
