Fed's Warsh Still Expects a Rate Hike This Year, Says Former Vice Chair Roger Ferguson

• Core PCE reached 129.63 in April (90.9 percentile of 12-month range) and CPI climbed to 333.979 in May, up 0.5% month-over-month, supporting the case for tightening despite three prior rate cuts totaling 75 basis points
• Warsh stripped implied forward guidance from the Fed statement and may phase out the dot plot, which Ferguson believes 'has outlived its usefulness,' marking a departure from Powell-era transparency
• The 10-year/2-year yield spread collapsed from 0.74% to 0.29% (12-month low) as bond traders reprice policy expectations without dot plot anchoring, with the 10-year at 4.46% and 2-year at 4.19%

Summary: Fed Rate Hike Still Expected in 2026 Under New Chair Warsh

Former Federal Reserve Vice Chairman Roger Ferguson indicated that a rate hike remains likely this year despite new Fed Chair Kevin Warsh holding rates steady at 3.75% during his debut meeting. The policy rate has been unchanged since December 11, 2025.

Key Economic Data

Inflation metrics support the case for tightening:

• Core PCE reached 129.63 in April, hitting the 90.9 percentile of its 12-month range
• CPI climbed to 333.979 in May, up 0.5% month-over-month
• Unemployment has remained stable at 4.3% for three consecutive months

Policy Changes Under Warsh

The new Fed Chair is implementing a gradual shift in communication strategy:

• Removed forward guidance language from the official Fed statement
• Implementing task forces to build consensus rather than issuing top-down directives
• Ferguson suggested the quarterly dot plot "has outlived its usefulness," signaling potential elimination of explicit rate projections

Market Implications

Bond markets are repricing expectations without traditional Fed guidance anchors. The 10-year/2-year yield spread compressed sharply from 0.74% (February 9) to 0.29% (June 17)—a 12-month low—with the 10-year at 4.46% and 2-year at 4.19%.

The transition away from explicit forward guidance, a tool developed during the zero-rate era, creates pricing uncertainty for traders. Warsh's approach acknowledges inflation pressures while building institutional consensus for policy changes, though the reduced transparency requires investors to work harder to interpret Fed intentions.