The interest rate decision was probably the most boring moment of the day the day before yesterday. Because the real show was stolen by someone else: Kevin Warsh.
The new Chair of the Federal Reserve, who sat in the boss's chair for the first time, and instead of simply telling us what would happen with interest rates, showed that he intends to change the way the entire central bank operates. Gradually, but decisively.
WHAT WAS ACTUALLY DECIDED
Let's start with the obvious. The Fed kept interest rates unchanged at a range of 3.5% to 3.75%. Unanimously. They have been there since late 2025, and nobody expected a change. So far, nothing surprising.
The interesting part came from the so-called "dot plot." What is that exactly? Put simply, it's a chart where each Fed official places a dot showing where they believe interest rates will be in the future. And this is where the big shift happened.
The median forecast for the end of 2026 rose to 3.8%. Back in March, it was 3.4%. What does that mean? It means the Fed now expects at least one rate hike during the year. Not a cut. A hike. Out of the 18 officials who submitted forecasts, 9 expect a rate increase, 8 expect no change, and only 1 expects a cut.
So why has the mood shifted so dramatically? Inflation. The Fed raised its 2026 inflation forecast to 3.6% for headline inflation and 3.3% for core inflation. Back in March, it expected 2.7% for both. The May Consumer Price Index came in at 4.2%. And it's worth noting that inflation has remained above the Fed's 2% target for five straight years.
WARSH IS CHANGING THE RULES
And this is where things become even more interesting. Because Warsh's first meeting was not really about interest rates. It was about what is going to change.
The first sign? He didn't submit his own dot in the dot plot. Yes, you read that correctly. The Fed Chair himself declined to provide a forecast.
"I didn't submit a dot for myself. It doesn't help the policymaking process," he said.
The second sign? The post-meeting statement. Usually they tweak a word or two here and there. This time they rewrote it from scratch. Just 130 words, compared to 341 words in April.
"It's a little shorter, a little simpler, and leaves behind some older language," Warsh said.
Most importantly, the Fed removed what is known as forward guidance. In other words, the promises and hints about what the Fed intends to do in the future.
And then came the big announcement.
Five task forces.
Five working groups that will reexamine everything: the Fed's communication strategy, its balance sheet, the data sources it relies on, productivity and employment trends alongside the impact of artificial intelligence, and the frameworks used to measure inflation.
"I believe that by the end of the year there will be a broader review of our communications," he said.
Press conferences, dot plots, meeting minutes, and even the schedule of Fed meetings are all on the table.
And what is his philosophy?
Warsh believes that inflation driven by supply shocks, such as energy prices or wars, should largely be looked through rather than aggressively fought. He also believes that artificial intelligence will ultimately lower prices by boosting productivity.
HOW THE MARKETS REACTED
So what did markets do with all of this?
To be honest, they were a bit confused.
The Dow Jones hit a new intraday record for the third consecutive day. The S&P 500 and the Nasdaq hovered around flat territory. Stocks initially fell, recovered some losses when Warsh explained the changes, but ultimately all major indexes closed lower.
"The market reaction was mainly driven by the dot plot, which came out much more hawkish," said Claudia Sahm.
In other words, it signaled a more aggressive stance toward future rate hikes.
Sonu Varghese of Carson Group noted that the committee remains far from unanimous, with only half of its members expecting rate increases.
Meanwhile, Goldman Sachs is maintaining its forecast for no rate hikes but admits that "the path is narrow."
There is also another factor at play: oil.
WTI crude is trading around $76 per barrel, while Brent is near $79.
Trump said that the agreement with Iran is not yet finalized and warned that the United States would "resume the bombings" if he is dissatisfied with the outcome.
The official signing is reportedly scheduled for Friday in Switzerland, so we are waiting to see what happens next.
