Fed Holds Rates Steady, Signals Higher-for-Longer Policy as Bitcoin and Stocks Slip

The Federal Reserve kept its benchmark federal funds rate unchanged at 3.50%–3.75% on Wednesday, a widely anticipated decision that nevertheless rattled financial markets as policymakers signaled a more hawkish outlook for the years ahead.

In its latest policy statement, the Fed said the U.S. economy continues to expand at a solid pace despite ongoing uncertainty linked in part to the conflict in the Middle East. The central bank also noted that inflation remains above its 2% target, citing supply-related disruptions that have pushed up prices in several sectors, particularly energy.

The Federal Open Market Committee (FOMC) emphasized its commitment to restoring price stability, reinforcing expectations that interest rates could remain elevated for an extended period. Updated economic projections revealed that policymakers now expect the federal funds rate to end 2026 at 3.8%, up from the 3.4% forecast released in March. Officials also raised their outlook for 2027 and 2028, projecting rates of 3.6% and 3.4%, respectively.

The Fed’s inflation forecasts were revised higher as well. Policymakers now expect personal consumption expenditures (PCE) inflation to reach 3.6% this year, while core PCE inflation is projected at 3.3%, significantly above the 2.7% estimates published earlier this year.

Financial markets reacted negatively to the announcement. Bitcoin (BTC) briefly fell from around $66,000 to below $65,000 before recovering near $65,300. Meanwhile, the S&P 500 and Nasdaq 100 each declined nearly 1%, wiping out gains recorded earlier in the trading session.

The meeting marked the first Federal Reserve policy decision under Chair Kevin Warsh, who succeeded Jerome Powell after receiving Senate confirmation last month. Investors are now closely watching Warsh’s post-meeting press conference for clues about the future direction of U.S. monetary policy.

Market participants have steadily reduced expectations for rate cuts in recent months as inflation has remained persistent and labor market conditions have stayed strong. Some traders are now assigning a growing probability to another rate hike rather than a rate cut.

Warsh’s remarks are expected to attract particular attention given his previous criticism of the Fed’s communication tools, including forward guidance and the quarterly “dot plot” projections. Investors will be looking for any indication that the central bank could adopt a different approach to policy communication under its new leadership.