Kevin Warsh, the new Federal Reserve Chair who replaced Jerome Powell, held interest rates unchanged at 3.5%–3.75% during the May 2026 Federal Open Market Committee meeting and emphasized that bringing inflation back to the 2% target remains a top priority. The decision reflected a tougher stance than many market participants had anticipated, with Warsh placing particular emphasis on inflation control. The Fed Chair transition occurred following pressure from Donald Trump, yet the central bank's monetary policy direction has not shifted toward an accommodative posture.
Fed Holds Rates at 3.5%–3.75% as Warsh Prioritizes Inflation Target
The Federal Reserve maintained the federal funds rate at 3.5%–3.75% during the May 2026 FOMC meeting. Kevin Warsh, who replaced Jerome Powell as Fed Chair, stressed that bringing inflation back to the 2% target remains a top priority. The statement signaled a tougher stance than many had expected, with Warsh placing particular emphasis on inflation rather than signaling any near-term policy easing.
Fed Raises 2026 Inflation Forecast to 3.6%, Core Inflation to 3.3%
The updated projections do not offer much reason for optimism. The inflation forecast for 2026 was raised from 2.7% to 3.6%, while core inflation expectations increased from 2.7% to 3.3%. For 2027, core inflation was also revised higher, from 2.2% to 2.5%. As for interest rates, the expected policy rate for 2026 was raised from 3.4% to 3.8%, and the 2027 projection was raised from 3.1% to 3.6%. Nine of the 18 voting members now expect another rate hike in 2026.
CME FedWatch Tool Shows 90% Probability of 2026 Rate Hike
Markets, according to the CME FedWatch Tool, now see just a 0.7% probability of a rate cut by June 2026, while the odds of another rate hike are almost 90%. The shift in market expectations followed the release of the Fed's updated inflation and rate projections.
Energy Prices Rose 3.8% in April, Contributing Over 40% of CPI Increase
A 3.8% jump in energy prices accounted for more than 40% of April's CPI increase. Gasoline prices have eased on positive developments in the Middle East. The reopening of the Strait of Hormuz has been under discussion, though it is still too early to say the conflict is truly over despite apparent progress in negotiations between the US and Iran. According to Reuters, new energy-security plans could require around 500 million additional barrels of strategic reserves. Combined with the need to refill inventories already drawn down, total additional demand could reach as much as 1 billion barrels.
FAQ
What did Kevin Warsh do during the May 2026 FOMC meeting?
Kevin Warsh, the new Federal Reserve Chair, held interest rates unchanged at 3.5%–3.75% during the May 2026 FOMC meeting and emphasized that bringing inflation back to the 2% target remains a top priority.
Why did the Fed raise its 2026 inflation forecast?
The Fed raised the 2026 inflation forecast from 2.7% to 3.6% and core inflation expectations from 2.7% to 3.3%. The updated projections reflected persistent inflationary pressures, including a 3.8% jump in energy prices that accounted for more than 40% of April's CPI increase.
What is the market probability of a Fed rate hike in 2026?
According to the CME FedWatch Tool, markets now see just a 0.7% probability of a rate cut by June 2026, while the odds of another rate hike are almost 90%. Nine of the 18 FOMC voting members expect another rate hike in 2026.
