Fed Holds at 3.5%-3.75%, Drops Easing Bias in Warsh's First Meeting

The Federal Reserve left rates unchanged at 3.50% to 3.75% for a fourth consecutive meeting, matching expectations. The unanimous vote came in Chair Kevin Warsh's first policy decision.

The post-meeting statement struck a hawkish tone by omitting previous language that had left the door open to rate cuts. The Committee described economic growth as strong, job creation as broadly aligned with labor-force expansion, and the unemployment rate as little changed. Inflation remained above the 2% target, with part of the persistence attributed to supply-side shocks. The Fed reaffirmed its commitment to restoring price stability without offering a timeline.

The omission of the easing bias was the main surprise. Markets had priced roughly a 40% chance of a cut by June, according to fed funds futures. That probability fell sharply after the statement crossed. The 10-year Treasury yield, hovering near 4.25%, moved higher on the session as traders pushed out expectations for the first rate reduction.

The dollar index, already strong from the January nonfarm payrolls report, extended gains. A higher-for-longer US rate path typically tightens dollar-based funding conditions globally. The three-month cross-currency basis swap remained stable, though traders said the risk is skewed toward dollar scarcity if the hike bias persists.

Equity markets were mixed. Growth-sensitive sectors including small caps and real estate sold off, while the S&P 500 held near flat. The shift in rate expectations weighed most on assets that depend on a low discount rate: high-duration equities and unprofitable tech names.

Gold slipped below $2,920 from near $2,950 as real yields ticked up. The metal tends to struggle when the opportunity cost of holding a non-yielding asset rises. A sustained move in the dollar and yields could test the late-February low around $2,860.

Cryptocurrency markets showed little direct reaction. Bitcoin held near $88,000, roughly matching the day's equity-vibe. The macro regime matters more for crypto when rate expectations shift meaningfully, though this statement did not cross that threshold.

The March summary of economic projections will include the first dot plot under Warsh. The last projection round showed a median expectation for two cuts in 2026. Markets interpreted Wednesday's statement as reducing the odds of near-term easing.