The June FOMC meeting will mark the transition to Kevin Warsh’s leadership of the Federal Reserve, with his first meeting and press conference as Chair. While we do not expect any change in policy rates, we believe the meeting could provide important insights into the future policy direction of the Fed and Warsh’s approach to communication.
We expect the updated dot plot to adopt a more hawkish tone, with the median FOMC participant projecting no rate cuts in 2026. At the same time, we anticipate a wider dispersion of policy views within the Committee, with some policymakers forecasting rate hikes while others continue to anticipate limited easing. In our view, this would highlight growing uncertainty around the inflation and growth outlook.
We also believe policymakers may revise higher their estimate of the longer-run neutral rate, reflecting the view that current policy is only mildly restrictive despite unchanged nominal rates.
A key focus will be Chair Warsh’s first press conference. We expect him to acknowledge near-term inflation risks while highlighting the productivity-enhancing and potentially disinflationary effects of AI-driven investment over the medium term.
On balance sheet policy, we do not expect any immediate changes. However, we believe Warsh will reiterate his preference for a smaller Federal Reserve balance sheet over time, with any reduction proceeding gradually and deliberately.
More broadly, we expect Warsh to place significantly less emphasis on forward guidance, dot plots and detailed policy signalling than previous Fed Chairs. This could result in greater market uncertainty and higher rate volatility. We would not rule out the possibility that he avoids providing detailed guidance on the future rate path, and there is even a possibility that he chooses not to submit his own policy rate projections to the SEP, consistent with his longstanding scepticism towards forecasting and forward guidance as policy tools.
