The Federal Reserve left interest rates unchanged, stripped forward guidance from its communications, and signalled a dramatic hawkish shift in its reaction function at Kevin Warsh’s first meeting as chair—confounding expectations for a smooth transition from the Powell era.

In significant revisions to the statement, officials removed anything resembling a forward policy outlook, including the easing bias that had previously drawn dissents from three regional governors. In an extraordinarily-brief passage, the committee described economic activity as expanding at a solid pace despite elevated uncertainty tied in part to the Middle East conflict, pointed to strong productivity growth and capital investment, and noted that job gains were keeping pace with the workforce. On inflation, officials acknowledged that price pressures remained elevated relative to the 2% target, attributing the overshoot in part to supply shocks—particularly in energy—rather than broad-based demand.

More shocking yet, the all-important “dot plot” Summary of Economic Projections showed the median policymaker now expects to hike rates in 2026—a definitively-hawkish adjustment relative to the cut that was previously expected, and median core inflation expectations were lifted to 3.6% for this year, up sharply from 2.7% in March. Projections for the unemployment rate fell to 4.3% from 4.4%, and growth forecasts were lowered to 2.2% from 2.4% previously. Chair Warsh recused himself, leaving 18 of 19 officials submitting projections.

The dollar is steamrolling all of its major rivals and Treasury yields are holding firm on the policy-sensitive end of the curve as investors add to bets on a hike coming before year end.

Assumptions could shift dramatically during the post-decision press conference at 2:30 , with Warsh likely to face questions on his plans for reforming the Fed’s communications framework, measuring inflation, and reducing its balance sheet. Evidence of a clear bias in his comments could see rates move across the curve, and might trigger further volatility in currency markets.