In Warsh's first Fed meeting, a unanimous hold hides a split committee and a debated rate cut, DiMartino Booth says

• Markets sold off sharply: the two-year Treasury yield jumped 10 basis points to 4.15% (largest Fed-day move since January 2022), gold fell 2.2% to $4,236 per ounce, and the dollar strengthened
• The Fed raised its 2025 inflation forecast to 3.6% from 2.7% and core inflation to 3.3% from 2.7%, adopting a more hawkish outlook on prices
• Warsh announced task forces to review Fed communications, balance sheet, and inflation measurement by year-end, eliminated forward guidance, and cut the post-meeting statement by 62% to 130 words

Summary: Fed Holds Rates Amid Deep Division in Warsh's First Meeting

The Federal Reserve voted unanimously to hold its benchmark rate at 3.5%-3.75% in Chair Kevin Warsh's first FOMC meeting, but the decision masked significant internal disagreement. The committee dropped forward guidance on rate cuts and dramatically shortened its statement by 62% to roughly 130 words.

Key Divisions:

Despite the unanimous vote, the Fed's Summary of Economic Projections revealed a split committee: nine of 18 officials forecast at least one rate hike in 2026 (six expecting two or more), while nine saw no change or cuts. Warsh notably broke precedent by not submitting his own rate projection. The median forecast projects rates at 3.8% by end-2026, 3.6% in 2027, and 3.4% in 2028.

Inflation Outlook:

Policymakers significantly raised inflation projections, with the median forecast jumping to 3.6% for 2023 (from 2.7% in March) and core inflation to 3.3% (from 2.7%). The 2% inflation target remains unchanged.

Market Reaction:

Markets sold off sharply. Two-year Treasury yields surged 10 basis points to approximately 4.15%—the largest Fed day move since January 2022. Gold dropped 2.2% ($94) to around $4,236 per ounce. The dollar strengthened.

Institutional Changes:

Warsh announced task forces to review communications, balance sheet operations, data sources, and inflation measurement frameworks, all due by year-end.

Expert Analysis:

Danielle DiMartino Booth of QI Research noted that bankruptcies are up 38.4% year-over-year and warned of emerging stress in private credit and private equity markets. She characterized the Treasury market volatility as a critical overlooked risk, while viewing gold's decline as a buying opportunity given potential financial instability ahead.