| Consensus | Consensus Range | Actual | Previous | |
| Change | 0bp | 0bp to 0bp | 0bp | 0bp |
| Federal Funds Rate - Target Range | 3.50 to 3.75% | 3.50 to 3.75% to 3.50 to 3.75% | 3.50 to 3.75% | 3.5 to 3.75% |
Highlights
As expected, the FOMC left the fed funds target rate range unchanged at 3.50 to 3.75 percent.
The vote was 12-0 in favor of maintaining the fed funds target rate range, the four-paragraph statement shows.
The statement highlights the"solid pace" of conomic activity. On inflation, it"remains elevated, in part reflecting supply shocks that have driven price increases in certain sectors, including energy. The Committee will deliver price stability."
As the new Kevin Warsh era is beginning, there was no word about the full employment mandate in the statement, which just pointed out that"job gains have kept pace with the workforce, and the unemployment rate has changed little". Beyond its expansion at a solid pace, there were also little details about the view on economic activity, suggesting the focus is more on inflation. The forward guidance of the statement is left out.
The update to the quarterly summary of economic projections (SEP) occurs amid the ongoing Middle east conflict and upward inflation pressure from energy prices, while the jobs market has demonstrated resilience.
Since the last update, expectations for GDP growth in 2026 were revised down to 2.2 percent from 2.4 percent, while the forecast for 2027 was maintained at 2.3 percent. The median was revised up one-tenth to 2.2 percent for 2028. The longer-run forecast is maintained at 2.0 percent, overall still reflecting expectations for continued modest growth.
The unemployment rate forecast was revised to 4.3 percent from 4.4 percent for 2026, but was unrevised for 2027 and 2028 at 4.3 percent and 4.2 percent, respectively.
The forecasts for inflation as measured by the PCE deflator were revised up significantly for 2026 to 3.6 percent from 2.7 percent. For 2027, it was revised up to 2.3 percent from 2.2 percent, while it was unrevised at 2.0 percent for 2028. Core PCE inflation was revised up to 3.3 percent from 2.7 percent in 2026, to 2.5 percent from 2.2 percent for 2027, and to 2.1 percent from 2.0 percent for 2028.
The forecast for the mid-point of the fed funds target rate range was lifted to 3.8 percent from 3.4 percent for 2026, to 3.6 percent from 3.1 percent for 2027, and to 3.4 percent from 3.1 percent in 2028, indicating a more hawkish stance than before. Nine of 18 officials now expect the funds rate to end 2026 higher.
Of note, while 19 participants submitted their forecasts in March, only 18 did this time around as Warsh refrained from doing so.
Market Consensus Before Announcement
Forecasters see no interest rate change or immediate shift in balance sheet policy. The consensus does look for the Fed to shift its current easing bias toward a more neutral stance. That means policymakers are saying the next step could equally be easing or tightening. Such a hawkish shift from the first FOMC meeting of Kevin Warsh’s tenure is not what President Trump bargained for when he named Warsh as chair but there is an emerging majority on the FOMC looking for a tougher stance on inflation.
Definition
The FOMC meeting announcement is a policy statement issued at the conclusion of each meeting of the Federal Open Market Committee. It offers updates on economic conditions with special focus on the health of the labor market and the latest on inflation. It also updates the status of the federal funds target which is the FOMC's official policy interest rate. This rate is expressed within a range, such as 1.75 to 2.00 percent. The center of this range is the implied target. The higher this target, the more restrictive monetary policy becomes, the lower this target, the more accommodative policy becomes. Other policy tools are also discussed in the meeting announcement including updates on direct purchases of Treasuries and mortgage-backed securities. Debate is not offered in the statement, just the consensus view is expressed, though the statement does list the total committee vote and how each member voted.
Description
The Fed determines interest rate policy at FOMC meetings. These occur roughly every six weeks and are the single most influential event for the markets. For weeks in advance, market participants speculate about the possibility of an interest rate change at these meetings. If the outcome is different from expectations, the impact on the markets can be dramatic and far-reaching.
The interest rate set by the Fed, the federal funds rate, serves as a benchmark for all other rates. A change in the fed funds rate, the lending rate banks charge each other for the use of overnight funds, translates directly through to all other interest rates from Treasury bonds to mortgage loans. It also changes the dynamics of competition for investor dollars. When bonds yield 5 percent, they will attract more money away from stocks than when they only yield 3 percent.
The level of interest rates affects the economy. Higher interest rates tend to slow economic activity; lower interest rates stimulate economic activity. Either way, interest rates influence the sales environment. In the consumer sector, fewer homes or cars will be purchased when interest rates rise. Furthermore, interest rate costs are a significant factor for many businesses, particularly for companies with high debt loads or who have to finance high inventory levels. This interest cost has a direct impact on corporate profits. The bottom line is that higher interest rates are bearish for the stock market, while lower interest rates are bullish.
The Fed also began quantitative easing during the past recession and, through direct purchases in the market, steadily increased its holdings of Treasuries and mortgage-back securities before pulling back from the program beginning in late 2017. Along with lowering its bond holdings, the Fed began to gradually raise its federal funds target until mid-2019 when, facing slowing global growth, it began to lower its target.
Frequency
Eight times a year.