Weekend Escalation Risk in the Middle East

I supported the Federal Open Market Committee’s (FOMC) decision to hold the federal funds rate at this week’s meeting,1 but I dissented against the FOMC’s action because I did not think it was appropriate to continue to include the following phrase in the policy statement: “In considering the extent and timing of additional adjustments to the target range for the federal funds rate …” While that phrase is not a commitment to make further cuts to the policy rate, it is widely interpreted by Fed watchers to indicate the Committee’s expectation that the next adjustment to the federal funds rate would be a cut. I consider this language a form of forward guidance about the likely direction for monetary policy. Given recent economic and geopolitical developments and the high level of uncertainty about the outlook, I do not believe such forward guidance is appropriate at this time. Instead, the FOMC should offer a policy outlook that signals that the next rate change could be either a cut or a hike, depending on how the economy evolves. Forward guidance is itself an instrument of monetary policy: It can influence financial conditions today, potentially slowing or hastening the achievement of our dual mandate goals. *KASHKARI: FORWARD GUIDANCE IN FOMC STATEMENT NOT APPROPRIATE *KASHKARI: UNANCHORED INFL.EXPECTATIONS WOULD REQUIRE RATE HIKES KASHKARI: FED SHOULD SIGNAL NEXT MOVE MAY BE A HIKE OR CUT KASHKARI STATED THAT BEFORE THE WAR, INFLATION WAS EXPECTED TO DROP, JUSTIFYING ANOTHER RATE CUT THIS YEAR; HOWEVER, MARCH'S EVENTS DID NOT SIGNIFICANTLY CHANGE THE POLICY STATEMENT.

Uncertainty around the economic outlook has increased in 2026 and makes the future path for monetary policy more uncertain, as well. At this week’s FOMC meeting, I supported holding the federal funds rate steady. I dissented from the post-meeting statement because I did not believe it was appropriate to include an easing bias around the future path for monetary policy. The current FOMC statement references language around “additional adjustments.” This forward guidance was put into the statement to signal a pause rather than an end to the easing cycle. I see this clear easing bias as no longer appropriate given the outlook. Activity in the US economy has been resilient thus far in 2026, and the unemployment rate has been little changed near my estimate of full employment since last summer. Inflation pressures continue to be broad based, and rising oil prices present an additional source of inflationary pressure. Uncertainty around the economic outlook is elevated, with upside risks to inflation and downside risks to growth and employment. A wide range of viewpoints is a cornerstone of our robust policy process. I look forward to continuing to work with FOMC colleagues to set monetary policy toward our goals of maximum employment and price stability. FED’S HAMMACK: DISSENTED AGAINST FED KEEPING AN EASING BIAS IN STATEMENT - INFLATION PRESSURES BROAD BASED, ENERGY DRIVING UP PRICES - FED’S ‘CLEAR EASING BIAS’ NO LONGER APPROPRIATE GIVEN OUTLOOK FED’S HAMMACK: I DISSENTED ON EASING BIAS MESSAGING AS IT WAS INAPPROPRIATE - THIS FORWARD GUIDANCE SIGNALS PAUSE, NOT PIVOT - ECONOMIC OUTLOOK UNCERTAINTY ELEVATED - FUTURE PATH FOR MONETARY POLICY NOW MORE UNCERTAIN - STATEMENT KEEPS "FURTHER ADJUSTMENTS" LANGUAGE - US ECONOMIC…

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