Fed keeps rates unchanged, but Warsh’s first projections signal fewer cuts ahead

The Federal Reserve left interest rates unchanged on June 17, but updated economic projections from Chair Kevin Warsh’s first policy meeting signaled that borrowing costs could remain elevated for longer than previously expected.

The Federal Open Market Committee [FOMC] voted unanimously to maintain the federal funds target range at 3.50%-3.75%. This extends a pause that markets had widely anticipated. 

However, the Fed simultaneously raised its inflation forecasts and lifted its projected rate path through 2028.

The updated projections suggest policymakers now expect a slower pace of monetary easing than they did three months ago.

Fed raises inflation outlook while keeping rates unchanged

In its policy statement, the Fed said inflation remains elevated. It acknowledged that ongoing uncertainty partly reflects the conflict in the Middle East and associated energy market disruptions.

The most significant changes appeared in the Fed’s updated economic forecasts.

Officials increased their median projection for 2026 personal consumption expenditures [PCE] inflation from 2.7% in March to 3.6% in June. Core PCE inflation, which excludes food and energy, was revised higher from 2.7% to 3.3%.

The revisions suggest policymakers expect inflation to remain above the Fed’s long-term target for longer than previously anticipated.

New projections point to higher-for-longer rates

The updated Summary of Economic Projections also showed officials expecting interest rates to remain higher through at least 2028.

The median year-end federal funds rate projection rose from 3.4% to 3.8% for 2026. Forecasts for 2027 increased from 3.1% to 3.6%, while the 2028 projection moved from 3.1% to 3.4%.

Those changes indicate policymakers now see less room for rate cuts over the coming years.

The projections mark the first major policy outlook released under Warsh, who took over as Fed chair in May following Senate confirmation earlier this year.

Economy remains resilient despite inflation concerns

Despite raising inflation expectations, the Fed made only modest changes to its broader economic outlook.

The median GDP growth forecast for 2026 was lowered slightly from 2.4% to 2.2%, while the 2027 projection remained unchanged at 2.3%.

Meanwhile, officials improved their unemployment forecast. The median jobless rate projection for 2026 fell from 4.4% to 4.3%, suggesting policymakers continue to view the labor market as relatively strong.

The combination of higher inflation forecasts, stable growth expectations, and a resilient labor market helps explain why policymakers are now projecting a slower path toward lower rates.

Markets assess implications for risk assets

The decision itself was largely expected by investors, leaving markets focused on the updated projections and Warsh’s assessment of inflation risks.

For crypto markets, the revised forecasts may temper expectations that lower interest rates will provide a near-term liquidity boost. Higher projected rates generally support tighter financial conditions, which can reduce demand for speculative assets.

At the same time, the absence of a rate hike and the Fed’s continued expectation of economic growth helped avoid a more negative reaction across risk markets.

Final Summary

• The Federal Reserve kept rates unchanged at 3.50%-3.75%, but raised its inflation forecasts for 2026 and beyond.
• Updated projections show policymakers expect interest rates to remain higher through 2028, pointing to a slower pace of monetary easing than previously forecast.