The Federal Reserve held interest rates steady on Wednesday but released projections showing a sharply more hawkish path under new Chair Kevin Warsh, with officials now signaling a possible rate increase this year as they lifted their inflation forecast well above target.
The Federal Open Market Committee maintained the target range for the federal funds rate at 3.50% to 3.75% by a 12-0 vote, in line with market expectations. But the accompanying Summary of Economic Projections, including the closely watched dot plot, told a more hawkish story.
The median projection for the federal funds rate at the end of 2026 rose to 3.8%, up from 3.4% in March and above the current midpoint of the target range, signaling that officials now see a possible rate hike this year rather than the cuts they had previously penciled in.
The longer-term path also shifted higher. The median rate projection moved to 3.6% for 2027 and 3.4% for 2028, pointing to a slower and shallower easing cycle than officials envisioned just three months ago. The longer-run, or neutral, rate held at 3.1%.
The Fed’s inflation outlook drove much of the change. Officials raised their median forecast for PCE inflation in 2026 to 3.6%, a substantial jump from the 2.7% projected in March, reflecting energy-driven price pressures tied to the conflict in the Middle East.
