ANALYSIS: Warsh’s Fed Sends Blunt Message 

Kevin Warsh has chaired his first Federal Open Market Committee meeting, and he wasted no time making clear this is a different central bank. 

The FOMC held the federal funds rate at 3.50%–3.75% on Wednesday, the fourth consecutive meeting without a move. The decision was unanimous and widely expected. What wasn’t fully priced in was the degree to which the accompanying statement, and the person now running the institution, would signal a clean break from the posture of the Jerome Powell era. 

A Shorter Statement

The policy statement was notably terser than anything produced under Powell. Gone was the language committing to the Fed’s 2% inflation goal. In its place: “the committee will deliver price stability.” Gone too was the so-called easing bias — the conditional language that had outlined the circumstances under which the Fed might consider cutting rates. No replacement language was offered. 

Warsh has long been skeptical of forward guidance, and he backed that up immediately by declining to submit his own interest rate forecast to the quarterly dot plot — an unusual move that itself sent a signal about how he intends to lead. 

The Dot Plot Flip

In March, 12 of 19 officials expected at least one rate cut this year, and no one anticipated hikes. Wednesday’s dot plot looked almost nothing like that. Nine officials now expect at least one quarter-point increase by year-end. Eight see rates unchanged. Only one still pencils in a cut. The median projection now points to a hike. 

The Fed’s Summary of Economic Projections shows no rate reduction expected in 2026, with the policy rate now seen ending the year at 3.8%, up from the March projection of 3.4%. The rate path beyond that also shifted higher: 3.6% in 2027 and 3.4% in 2028, compared to prior estimates of 3.1% for both years. The longer-run rate holds at 3.1%. 

Two-Sided Paralysis

Market participants are now grappling with a Fed that has effectively declared itself data-dependent in both directions, with high bars to move either way. 

Kurt Funderburg, CIO at Byline Bank, described it plainly. “The Fed has entered a two-sided pause regime — the hurdle for cuts is high, but the hurdle for hikes is also high,” he said. He noted that markets are currently pricing roughly seven basis points of hikes by year-end, while SOFR options assign about a 20% probability to a hike. His advice to investors is to stop treating the Fed as the marginal driver of returns for at least the next two quarters. Earnings, the AI investment cycle, the dollar, and geopolitics are doing more of the work now. 

Ryan Severino, chief economist and head of research at BGO, sees the Fed in a patient holding pattern for now. Headline inflation is too elevated to justify cuts, he said, but core inflation hasn’t shown much pass-through from energy prices to other goods and services yet. With the Iran ceasefire agreement set to be signed and energy price pressure easing, at least temporarily, the Fed has room to wait. 

Severino flagged the long end of the curve as the more important variable to watch. “With inflation and uncertainty still a bit elevated, it isn’t a surprise to see the 10-year lurking near 4.5%. But if the market buys into the ceasefire agreement and the reopening of the strait, that could alleviate some of those pressures and help bring the yield down over the balance of the year.” 

Bryan Jordan, chief strategist at Cycle Framework Insights, described a Fed with little wiggle room. “The combination of upside inflation risks, downside employment risks, and an elevated level of uncertainty more generally has left the Fed with little room to maneuver,” he said. “Rates are unlikely to change until there is more clarity on the outlook.”  

He also cautioned that Warsh faces an internal challenge: “It will take time for Chairman Warsh to build a consensus. This is an unusually divided Fed, as evidenced by the sharp upturn in dissenting votes at FOMC meetings beginning in mid-2025.”  

But he also noted that extended inaction would be historically unusual: outside of periods when the fed funds rate was effectively at zero, the FOMC hasn’t gone a full calendar year without adjusting rates since 1993. 

Real Estate Braces for the New Regime

For commercial real estate, the shift in expectations is pointed. Ed Del Beccaro, EVP and San Francisco Bay Area Manager at TRI Commercial Real Estate Services, noted that the sector has gone from hoping for cuts to hoping rates aren’t raised. “Warsh will have to show some signs of independence to have credibility with the markets. I expect rates to be held constant with a wait and see until the fourth quarter,” he said. 

“The biggest takeaway for CRE will likely be whether the new Fed leadership gives the market confidence that rates are stabilizing, or whether it creates more uncertainty around the cost of capital,” added Andrew Koller, research analyst and advisor at WCRE. 

The Hike Probability Is Rising

Tom Briney, President and CIO of Origin Credit Advisers, put it most directly. He sees the probability of a rate cut in 2026 as near zero and places the odds of a hike at or just above 50%. His read on the broader economy is more sanguine: inflation is not out of control, the job market remains solid, risk assets are performing, and credit markets are stable — a Goldilocks backdrop that gives the Fed room to tighten, if necessary, without triggering a broader shock. 

Michael Underhill, CIO at Capital Innovations, described a market still recalibrating. “A few months ago, the market had fully bought into the idea that rate cuts were imminent. That collective conviction has now evaporated, and with it the entire liquidity narrative has flipped on its head,” he said.  

He argued that Warsh’s ambiguity is itself a tightening force: “Markets don’t yet know how he’ll balance the trade-off between growth durability and inflation discipline, and that ambiguity alone tightens financial conditions.” 

“Higher rates raise the cost of capital, slow discretionary spending, compress margins, and pressure equity valuations. Markets run on liquidity — and a Fed leaning harder into inflation-fighting mode becomes a structural headwind for risk assets. Markets are still working out what comes next.”