Fed Signals Higher-for-Longer Rate Path in First Projections Under Chair Kevin Warsh’s Leadership

The Federal Reserve kept interest rates unchanged on Wednesday but delivered a notably more hawkish message through its updated economic projections, signaling a departure from the market’s expectation of a steady path toward lower borrowing costs.

The June Summary of Economic Projections (SEP) showed Federal Open Market Committee (FOMC) participants raising their forecasts for both inflation and the federal funds rate through 2028, while modestly reducing growth expectations for 2026.

The updated projections come during the early months of the Fed’s new leadership era under Chair Kevin Warsh, marking what appears to be a shift away from the policy trajectory that had increasingly pointed toward lower rates earlier this year.

According to the median projections, policymakers now expect the federal funds rate to end 2026 at 3.8%, up from 3.4% projected in March. The 2027 projection increased to 3.6% from 3.1%, while the 2028 estimate rose to 3.4% from 3.1%. The longer-run neutral rate estimate remained unchanged at 3.1%.

The revised rate outlook reflects growing concern about inflation persistence. The Fed now expects PCE inflation to reach 3.6% in 2026, a significant increase from the 2.7% forecast released in March. Core PCE inflation, which excludes food and energy prices, was also revised higher to 3.3%, compared with 2.7% previously.

While inflation forecasts moved higher, growth expectations were revised slightly lower. Policymakers now project U.S. real GDP growth of 2.2% in 2026, down from 2.4% in the March projections. The unemployment rate forecast improved modestly to 4.3%, compared with 4.4% previously.

The updated “dot plot,” which reflects individual policymakers’ expectations for future interest rates, showed a concentration of projections near or above 4% for 2026, reinforcing the message that officials anticipate maintaining restrictive monetary policy for longer than markets had previously expected.

The projections suggest the Fed’s primary focus remains on ensuring inflation returns sustainably to its 2% target, even as economic growth moderates. The combination of higher inflation forecasts and higher projected policy rates indicates policymakers see less room for near-term easing than they did only three months ago.

For investors, the June projections may represent one of the clearest signals yet that the Federal Reserve has stepped away from the lower-rate trajectory that emerged earlier this year. As the Kevin Warsh era begins, monetary policy appears positioned to remain tighter for longer, reflecting a renewed emphasis on inflation control over rate normalization.

The June projections suggest Federal Reserve officials now expect interest rates to remain higher for longer than indicated in their March forecasts. Policymakers raised their projected path for the federal funds rate through 2028 while also revising inflation expectations upward, reflecting continued concern that price pressures may take longer to return to the central bank’s 2% target.