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Kevin Warsh’s first meeting as chair of the Federal Reserve’s Federal Open Market Committee (FOMC) ended on Wednesday with interest rates left unchanged, keeping the federal funds target rate at 3.50% to 3.75%.

The decision itself was widely expected. The more important signal came from the Federal Reserve’s updated projections.

Inflation expectations were revised higher across the board, with the committee lifting its 2026 personal consumption expenditure (PCE) inflation forecast to 3.6% from 2.7% in March.

Core PCE, which strips out food and fuel and serves as the Fed’s preferred measure of underlying price pressures, was also raised to 3.3% from 2.7%.

At the same time, the forecast for the federal funds rate moved up to 3.8% by end 2026, from 3.4% previously.

Bheki Mahlobo, The Common Sense’s inhouse economist, said, “Taken together, all of this signals a policy path that keeps rates higher for longer, with the possibility of an additional 25 basis point hike towards the end of the year, and that is a message that the South African Reserve Bank (SARB) will be paying close attention to.”

Fed chair Warsh added to the hawkish outlook on American interest rates by not submitting his own forecast and by offering limited forward guidance. This is notable because no Fed chair in recent history has chosen not to provide an individual forecast.

Mahlobo said there was an interesting political dynamic at play here.

“President Trump appointed Warsh on the expectation that he might lean toward cutting interest rates, particularly given Warsh’s recent remarks interpreted as supportive of stronger growth. However, his longer-term record points in the opposite direction, and that to the extent of appearing as a dove, he was a dove in hawk’s clothing. As a former Federal Reserve governor, he was an arch hawk on inflation risks and the dangers of keeping policy too loose for too long.

“The dove-in-hawk’s-clothing perception was deepened by his failure to deliver an individual data view yesterday and as a consequence equity markets weakened, with the S&P 500 and the Dow Jones Industrial Average both falling by nearly 1%, while the Nasdaq Composite declined by 1.34%, all of which is consistent with a risk-off repricing, where higher expected interest rates reduce asset valuations, particularly in technology sectors, where future earnings are more sensitive to interest rates.”

According to Mahlobo, for South Africa, sustained higher interest rates in the United States (US) tend to strengthen the dollar and put downward pressure on the rand, while for the SARB, higher US rates reduce space for domestic interest rate cuts.

“Even if local inflation moderates, higher global rates and more volatile capital flows are likely to keep the SARB’s monetary policy outlook cautious. This raises the possibility that South Africa may also lean toward maintaining tighter conditions, with the probability of a 25 basis points hike in July if inflation in June is above 4.5%, and possibly a further hike in November should the US monetary policy outlook remain restrictive and the rand come under sustained pressure. My prediction, however, is that the decline in oil prices will see the June inflation number coming in below 4.5%, in which case the SARB will hold in July and then look to US guidance on what to do in November,” Mahlobo said.