The Federal Reserve held interest rates steady on Wednesday but released projections showing a sharply more hawkish path under new Chair Kevin Warsh, with officials now signaling a possible rate increase this year as they lifted their inflation forecast well above target.

The Federal Open Market Committee maintained the target range for the federal funds rate at 3.50% to 3.75% by a 12-0 vote, in line with market expectations. But the accompanying Summary of Economic Projections, including the closely watched dot plot, told a more hawkish story.

The median projection for the federal funds rate at the end of 2026 rose to 3.8%, up from 3.4% in March and above the current midpoint of the target range, signaling that officials now see a possible rate hike this year rather than the cuts they had previously penciled in.

The longer-term path also shifted higher. The median rate projection moved to 3.6% for 2027 and 3.4% for 2028, pointing to a slower and shallower easing cycle than officials envisioned just three months ago. The longer-run, or neutral, rate held at 3.1%.

The Fed’s inflation outlook drove much of the change. Officials raised their median forecast for PCE inflation in 2026 to 3.6%, a substantial jump from the 2.7% projected in March, reflecting energy-driven price pressures tied to the conflict in the Middle East.

Core PCE inflation was lifted to 3.3% from 2.7%. Both measures are still expected to return toward the Fed’s 2% goal by 2028. At the same time, officials trimmed their 2026 GDP growth forecast to 2.2% from 2.4%, while the unemployment rate projection was little changed at 4.3%.

The projections paint a picture of an economy with solid growth but stickier inflation than previously expected, a combination that gives the Warsh-led Fed little room to ease and arguably a reason to tighten. Participants broadly judged the risks to inflation as weighted to the upside, while uncertainty around the outlook remained elevated.