The first Federal Reserve interest rate decision under Chairman Kevin Warsh's leadership will be announced in the early hours of Thursday, Beijing time. While holding rates steady is a near certainty, significant market divergence exists over interpreting signals from the policy statement wording, updated economic projections, and Warsh's press conference—the real variables of this "debut" are far more complex than the rate number itself.

Regarding the policy statement, Goldman Sachs, Bank of America Securities, and Morgan Stanley all anticipate the Fed will remove the "easing bias" language maintained for months, signaling to markets that the likelihood of rate cuts and hikes is now roughly balanced.

Simultaneously, the updated economic projections are expected to show a significant upward revision to inflation forecasts—Goldman Sachs expects the median 2026 core PCE forecast to be raised from March's 2.7% to around 3.3%. The median interest rate dot plot is likely to shift from "one cut this year" to "no move this year," with a few dots signaling potential rate hikes. Progress on the US-Iran agreement has pulled oil prices down significantly from highs, easing some external inflation pressure, but the stickiness of core inflation continues to constrain policy space.

The Main Event: The Press Conference

The spotlight will fall squarely on Warsh's press conference. Bank of America Securities notes that if he characterizes recent inflation as a one-time supply-side shock and emphasizes the disinflationary potential of AI, long-end rates could face selling pressure. If he explicitly endorses a rate hike path, the 2-year SOFR could rise by about 15 basis points, providing directional support for the US dollar. Goldman Sachs characterizes this press conference as a fork in the road for "distinctly different outcome paths under the same rate decision," with various asset classes like rates, FX, equities, and gold already positioning for event hedges.

While former President Trump appointed Warsh with expectations for rate cuts, the committee Warsh inherited has quietly pivoted sharply hawkward. With high inflation and strong employment, several officials have publicly stated rate hikes should remain an option. His debut will navigate contradictory data, divided expectations, and his own likely desire to maintain some policy ambiguity.

The Rate Decision: On Hold, But Not Inactive

Maintaining the federal funds rate in the 3.50% to 3.75% range is almost a universal market consensus for this meeting.

A Reuters survey of 102 economists found 72 expect rates to remain unchanged through the end of 2026. In money markets, the US-Iran conflict's initial oil price spike once led to full pricing of a rate hike this year. As talks progressed and oil retreated from highs, hike expectations narrowed. The market currently prices in about 18 basis points of cumulative tightening by year-end, implying roughly a 72% probability of one 25-basis-point hike.

The vote is expected to be unanimous. Bank of America Securities believes hawkish members will be satisfied with the removal of the easing bias, and the sole dissenting vote previously calling for a cut—from former Governor Stephen Miran—has been replaced by Warsh. While Warsh is generally dovish, Bank of America explicitly states he will not advocate for a rate cut at his first meeting.

Statement Wording: The Easing Bias Exits, Policy Returns to Neutral

Adjustments to the statement's wording are the most certain change at this meeting and the most direct signal of the committee's shifting stance. The current phrasing, "In considering any adjustments to the target range for the federal funds rate...", has long been interpreted as hinting the next move was more likely a cut.

At the April meeting, voting members Kashkari, Hammack, and Logan already dissented over removing the easing bias. Subsequently, Governor Christopher Waller's comments became a key turning point. This official, previously seen as a leading dove, stated publicly in May that based on recent data, he supported removing the bias "to make clear that cuts are not more likely than hikes." Goldman Sachs views Waller's stance as representing a collective shift within the dovish camp.

There is some divergence in expectations on the specific wording changes. Bank of America Merrill Lynch expects the committee might delete the word "additional" or go further by removing "extent and timing," replacing it with the more neutral "any adjustments." Warsh might even advocate for deleting the entire forward guidance paragraph, consistent with his long-standing criticism of such guidance. Goldman also expects the related phrasing to be removed, noting the statement has room for further shortening and simplification due to overlapping content in some sections.

Descriptions of the labor market are also expected to be upgraded. Bank of America Merrill Lynch anticipates the current "job gains have been modest" will be revised to reflect recent strong consecutive nonfarm payroll reports, potentially changing to language like "job gains have picked up, and the unemployment rate has remained largely stable in recent months."

The Dot Plot: Inflation Revised Sharply Higher, Hike Expectations Emerge

This updated Summary of Economic Projections (SEP) is expected to show the most pronounced hawkish pivot of this monetary policy cycle.

On macro forecasts, Goldman Sachs expects the median 2026 PCE inflation forecast to be raised sharply from March's 2.7% to around 3.9%, with core PCE rising from 2.7% to around 3.3%, primarily reflecting the combined impact of the energy shock from the Iran conflict and AI-related memory price increases. GDP growth forecasts are expected to be revised down from 2.4% to around 2.2%, while the unemployment rate forecast is seen edging down to 4.3%.

Regarding the interest rate dot plot, Goldman expects the median 2026 rate will remain at 3.625%, but about 4 to 5 dots will cluster at 3.875%, meaning a minority of officials have incorporated a hike into their baseline forecast for this year. Bank of America Securities notes its base case is for Hammack, Logan, and Schmid to submit hike forecasts, with Kashkari, Musalem, and others as possible followers. Goldman strategist Rich Chambers stated, "With a year-end core PCE forecast around 3.4%, market pricing will stay near 3.875%; even if a peace deal lands, the hike premium will persist."

A key variable is whether Warsh himself participates in the SEP. Both Bank of America Securities and Deutsche Bank expect he will not submit forecasts, citing his short tenure and, more fundamentally, his systemic skepticism of forward guidance tools. If Warsh is absent from the dot plot, it would implicitly shift the median in a hawkish direction, as his potentially lower rate forecast dots would be excluded from the calculation.

Goldman's baseline forecast shows the Fed's final two rate cuts landing in June and December 2027. However, Goldman also notes that a "longer-for-higher" flat path is a near-equal probability alternative to the baseline, and the overall probability-weighted rate forecast remains more dovish than market pricing, mainly reflecting Goldman's lower probability assessment of a hike scenario.

The Press Conference: Warsh's Policy Style Takes the Stage

Warsh's first post-meeting press conference is the core market risk event of this meeting. How he balances a hawkish committee with his personal dovish leanings will provide the first real-time material for markets to assess his policy framework.

Based on his public stance, Warsh repeatedly emphasized opposition to excessive forward guidance during his confirmation hearings, advocating for balance sheet reduction and a return to interest rates as the primary policy tool. He favors the Dallas Fed Trimmed Mean PCE (currently around 2.35%) as an inflation reference, believing it more accurately reflects underlying inflation pressure than core PCE, and has questioned the accuracy of current inflation measurement. He has also appointed conservative policy analysts Paul Winfree and Daniel Hall as advisors.

Bank of America Securities' baseline expectation is that Warsh will deliver a mildly dovish signal at the press conference: characterizing the Iran conflict as a one-time energy shock that doesn't materially change inflation fundamentals; emphasizing the disinflationary potential of AI-driven productivity gains; and reiterating that monetary policy should remain forward-looking and not be swayed by single-month energy price swings. However, Bank of America also explicitly states recent data is insufficient to support advocating for a near-term cut, and Warsh will emphasize patience, preserving space for potential easing later in the year.

Goldman's trading desk's overall expectation is that Warsh will acknowledge inflation is above target and the labor market is firming, but will not give clear direction on a future tightening path, instead expressing a "neutral stance, ready to move in either direction"—a formulation that helps him unite differing internal committee views and avoids triggering unnecessary market volatility at his first outing.

Bank of America also notes Warsh might announce a change from holding a press conference after every meeting to a quarterly schedule, which itself would be a significant signal of communication reform. Goldman, however, does not expect Warsh to address issues like reducing FOMC size, balance sheet runoff, or formally abandoning forward guidance at this meeting.

Economic Backdrop: Sticky Inflation Meets Resilient Employment

Ahead of this meeting, economic data presented a "strong employment, sticky inflation" picture, setting the tone for the committee's policy discussion.

On employment, the May nonfarm payroll report marked a third consecutive month of strong gains, with a three-month average around 188k. Goldman Sachs expects that even with growth below potential and oil prices weighing on consumption, the unemployment rate will only edge up to 4.4%, with the overall labor market remaining on a solid track.

On inflation, the energy shock boosted headline inflation. Goldman expects full-year PCE inflation to exceed 4% and core PCE to stay above 3% for the year. With US-Iran deal progress and oil's retreat, some economists believe May might be the peak month for headline inflation, contingent on the smooth reopening of the Strait of Hormuz. Goldman believes the combined impact of tariffs, energy prices, and AI-related memory price increases on core PCE has passed its most extreme phase, with month-on-month increases likely to gradually decline through the year; however, inflation will remain above the Fed's 2% target for the foreseeable future.

Goldman notes that solid labor market data allows the committee to focus on whether the inflation situation has deteriorated enough to warrant a rate hike. The anchoring of core inflation expectations and the breadth of high inflation data will be key dimensions for the committee's future policy assessment.

Market Impact: Divergent Responses Across Rates, FX, and Equities

Various asset classes have already developed their own response frameworks for this FOMC meeting.

In rates markets, Bank of America Securities believes that Warsh's expected neutral-to-dovish stance in the base case would be interpreted as hawkish for a data-dependent posture. It recommends investors go long the 2-year US Treasury yield (currently ~4.07%, target 4.25%) and maintain a flattening trade on the 2s10s curve. Goldman strategist Josh Schiffrin notes limited room for front-end rates to move significantly lower; a clear labor market weakening would be needed for market expectations to shift from hikes to cuts.

In FX markets, Bank of America notes that hawkish adjustments to the statement and SEP are largely priced in, with the biggest upside risk for the US dollar coming from a more hawkish-than-expected Warsh press conference. If he downplays recent inflation citing the US-Iran deal, the dollar could face near-term pullback pressure. Goldman FX options strategist Harriet Bull points out that current G10 currency option pricing implies a meeting gap of about 45-55 basis points, at the higher end of the past year's range. However, with base volatility declining on improved risk sentiment, holding long volatility positions around the event still appears attractive from a risk-reward perspective.

In equity markets, Goldman derivatives strategist Cindy Lu notes this event risk is two-sided: if Warsh's stance is dovish or neutral, it could extend the recent equity rally; if he is explicitly hawkish, it would pose the main threat to risk asset positions. Given VIX expiration and front-end implied volatility at recent lows, holding gamma via options around the event offers relatively attractive value.

In gold markets, Goldman data shows CTAs, ETFs, and futures markets have all turned net short on gold, with GLD call skew at a decade low and put skew at a historical high. Goldman believes that if the Fed signals a neutral or dovish stance and the Iran deal proceeds smoothly, gold could see a tactical rebound after short covering, suggesting using risk reversals to position for upside risk.

The Iran Deal: Warsh's "Cushion" and the Biggest Tail Risk

Easing US-Iran tensions are the most critical macro background variable for this meeting.

At the peak of the conflict, soaring energy prices once pushed markets to fully price in a rate hike this year. As a negotiation framework took shape, Brent crude has retreated significantly from its peak to around $82—a more than three-month low. Market pricing for a hike this year has now narrowed to about 18 basis points, with the formal agreement signing expected by this Friday.

Goldman notes that historically, the Fed's monetary policy response to oil price shocks has been relatively restrained. The correlation between high oil prices and hawkish rhetoric is low, and with wage inflation still moderate and the labor market showing no signs of overheating, the fundamental case for aggressive hikes is weak. Goldman expects the extreme monthly inflation boost from oil and AI-related memory prices has largely passed and will gradually fade through the rest of the year.

Goldman's global head of emerging markets and G10 spot FX trading, Alan Stewart, notes this provides Warsh with ample justification to characterize recent inflation shocks as temporary supply-side events, offering both political and logical support for a "wait-and-see" stance. However, he warns that if the deal process hits snags or Strait of Hormuz reopening is slower than expected, "the recently cooled hike expectations could rebound rapidly."

Under Goldman's baseline forecast, the Fed will hold rates steady throughout 2026, with the final two cuts pushed to June and December 2027. Goldman's probability-weighted Fed path remains significantly more dovish than current market pricing, primarily due to its skepticism about a hike scenario. The Goldman report states plainly: "Trump appointed Warsh for rate cuts, not hikes, and Warsh knows this." This doesn't mean he will act rashly at his first meeting, but it reflects his cautious stance on hiking as well. The most likely outcome for Warsh's debut is "no bombshell"—but the wrong words could still light the fuse at any moment.