Instant Reaction: The Fed Decides | Bloomberg Businessweek

The FOMC delivered a hawkish surprise: 9 of 18 members penciled in rate hikes for 2026, core inflation forecasts were revised sharply higher (3.3% for 2026), and the statement was shortened to four paragraphs with no mention of the employment mandate. Former Fed Vice Chair Clarida and other guests interpret this as a deliberate signal that the Fed is prioritizing price stability over the dual mandate, with markets repricing front-end yields sharply higher and equities selling off. The key question is whether Chair Warsh will endorse or push back against this hawkish tilt in his press conference.

explicit

inferred

US 2-year sharp up

Federal Reserve 9.5
Central Bank
Rich Clarida 8.5

Instant Reaction: The Fed Decides | Bloomberg Businessweek

Fed funds; US 10y

dxy

A hawkish Fed that signals potential rate hikes while other central banks are also tightening would likely support the US dollar as rate differentials widen. The flattening yield curve and front-end rate increases typically attract capital flows into USD-denominated assets.

metals

A hawkish Fed signaling higher rates typically strengthens the dollar and raises real yields, both of which are negative for precious metals like gold which have no yield. The sharp repricing of front-end rates would reduce the appeal of non-yielding assets.

ndx

The Nasdaq is continuing to decline. The S&P 500 down about a half of a percent. Stocks have extended their losses, S&P and Nasdaq losing two thirds of 1%.

23 calls

no reliable edge (random outcomes)

6/3/2026 1:55:50 PM	medium term cautious up	20 days later	-3.91%	-1.95%
5/22/2026 11:46:36 PM	short term up	5 days later	+2.52%	+2.52%
5/15/2026 6:46:19 PM	short term down	6 days later	+1.68%	-1.68%
4/21/2026 10:56:53 PM	short term down	5 days later	+1.37%	-1.37%
4/21/2026 10:53:54 PM	short term down	5 days later	+1.37%	-1.37%
4/21/2026 9:02:49 PM	short term down	5 days later	+1.37%	-1.37%
1/30/2026 11:22:22 AM	short term down	7 days later	-1.83%	+1.83%
1/16/2026 6:35:13 PM	short term sharp down	7 days later	+0.72%	-1.08%
1/13/2026 2:09:12 AM	short term down	5 days later	+0.25%	-0.25%
1/12/2026 10:19:49 AM	short term down	6 days later	-0.83%	+0.83%
11/12/2025 7:56:09 PM	medium term cautious up	20 days later	+2.45%	+1.23%
11/10/2025 11:28:21 PM	short term cautious down	6 days later	-2.87%	+1.44%
11/4/2025 10:02:59 AM	short term cautious down	5 days later	-0.03%	+0.02%
9/24/2025 7:15:12 PM	short term cautious down	5 days later	+1.16%	-0.58%
9/10/2025 2:40:48 PM	short term up	5 days later	+1.17%	+1.17%
8/28/2025 11:22:55 PM	short term up	5 days later	-+0.00%	-+0.00%
8/22/2025 11:32:42 PM	short term sharp up	8 days later	-0.83%	-1.25%
8/21/2025 1:01:24 PM	short term cautious up	5 days later	+0.29%	+0.14%
8/6/2025 4:32:08 PM	short term cautious down	5 days later	+1.92%	-0.96%
8/6/2025 4:30:01 PM	short term cautious down	5 days later	+1.92%	-0.96%

Show all 20 ndx results

rut

The broad sell-off in equities driven by hawkish Fed surprise would disproportionately impact small caps (RUT) which are more rate-sensitive and growth-dependent. The S&P 500 decline of 0.6% and Nasdaq decline suggest broad-based equity weakness.

wti

The transcript mentions 'elevated uncertainty that owes in part to conflict of the Middle East' and 'supply shocks that have driven price increases in certain sectors, including energy.' The Fed's hawkish stance could weigh on demand expectations, while geopolitical tensions support supply-side risks, creating a volatile outlook for oil.

yields

Two-year yield up nine basis points, 10-year yield up about two basis points. The front end's up 6, 7, 8 basis points. The long end's down a basis point.

185 calls

no reliable edge (random outcomes)

6/17/2026 11:26:18 PM	short term sharp up	5 days later	+0.94%	+1.42%
5/28/2026 9:19:50 PM	medium term up	20 days later	-0.04%	-0.04%
5/28/2026 1:09:39 AM	medium term up	20 days later	-0.04%	-0.04%
5/26/2026 3:37:50 PM	short term up	5 days later	-0.13%	-0.13%
5/22/2026 9:31:07 PM	medium term cautious up	22 days later	-1.95%	-0.98%
5/22/2026 5:45:12 PM	medium term sharp up	22 days later	-1.95%	-2.93%
5/19/2026 7:30:09 PM	short term down	5 days later	-0.31%	+0.31%
5/18/2026 4:30:56 PM	medium term cautious down	20 days later	-2.46%	+1.23%
5/15/2026 9:33:59 PM	medium term sharp up	21 days later	-1.54%	-2.30%
5/14/2026 3:58:16 PM	medium term cautious down	20 days later	-2.57%	+1.28%
5/13/2026 8:31:28 PM	short term up	5 days later	+4.62%	+4.62%
5/6/2026 9:31:19 PM	short term cautious up	5 days later	+1.62%	+0.81%
4/29/2026 9:59:50 PM	short term cautious up	5 days later	+0.59%	+0.30%
4/22/2026 1:15:04 AM	medium term cautious up	20 days later	+3.65%	+1.83%
4/21/2026 10:49:31 PM	short term cautious up	5 days later	+0.98%	+0.49%
4/21/2026 9:02:49 PM	short term up	5 days later	+0.98%	+0.98%
4/16/2026 4:46:20 PM	medium term cautious up	20 days later	+3.44%	+1.72%
4/9/2026 12:35:56 AM	medium term up	20 days later	+1.69%	+1.69%
4/1/2026 10:00:00 AM	medium term cautious down	20 days later	-0.44%	+0.22%
3/30/2026 9:16:07 PM	medium term cautious down	20 days later	-1.41%	+0.71%
3/18/2026 11:29:30 PM	medium term cautious up	20 days later	+0.23%	+0.12%
3/18/2026 8:57:23 PM	medium term cautious down	20 days later	+0.23%	-0.12%
3/6/2026 6:25:25 PM	short term cautious up	5 days later	+3.68%	+1.84%
3/5/2026 10:19:45 AM	medium term down	20 days later	+6.85%	-6.85%
3/4/2026 2:04:00 PM	medium term up	20 days later	+4.39%	+4.39%
2/25/2026 12:14:44 AM	medium term cautious down	20 days later	+6.02%	-3.01%
2/24/2026 5:28:52 PM	medium term cautious down	20 days later	+3.80%	-1.90%
1/31/2026 1:39:54 AM	short term cautious down	7 days later	-1.80%	+0.90%
1/30/2026 4:06:49 PM	short term up	7 days later	-1.80%	-1.80%
1/21/2026 10:03:18 PM	medium term cautious up	20 days later	-1.81%	-0.91%
1/15/2026 8:49:33 PM	medium term cautious down	20 days later	-0.50%	+0.25%
1/15/2026 4:20:34 PM	medium term cautious down	20 days later	-0.50%	+0.25%
1/15/2026 12:26:20 AM	short term cautious down	5 days later	+0.52%	-0.26%
1/13/2026 2:09:12 AM	short term up	5 days later	+2.20%	+2.20%
1/8/2026 11:18:05 PM	medium term down	20 days later	+1.34%	-1.34%
1/8/2026 5:00:02 PM	medium term cautious down	20 days later	+1.34%	-0.67%
12/23/2025 1:43:04 PM	medium term cautious down	20 days later	+0.85%	-0.42%
12/22/2025 6:49:39 PM	short term cautious down	6 days later	-1.27%	+0.64%
12/22/2025 6:31:04 PM	medium term down	20 days later	+0.43%	-0.43%
12/19/2025 4:38:22 PM	medium term cautious down	21 days later	+0.43%	-0.22%
12/17/2025 4:02:54 PM	medium term cautious down	20 days later	+0.53%	-0.27%
12/12/2025 11:35:37 PM	medium term cautious down	21 days later	-0.41%	+0.20%
12/12/2025 7:30:18 PM	long term cautious down	60 days later	-3.01%	+1.51%
12/12/2025 4:27:07 PM	long term cautious down	60 days later	-3.01%	+1.51%
12/11/2025 8:07:07 PM	medium term cautious down	21 days later	-0.17%	+0.08%
12/10/2025 11:45:00 PM	short term cautious down	5 days later	+0.19%	-0.10%
12/10/2025 10:06:22 PM	short term cautious down	5 days later	+0.19%	-0.10%
12/10/2025 9:59:59 PM	short term down	5 days later	+0.19%	-0.19%
12/10/2025 9:58:25 PM	short term down	5 days later	+0.19%	-0.19%
12/8/2025 4:22:22 PM	short term down	6 days later	-0.10%	+0.10%
11/25/2025 1:10:38 PM	short term cautious down	5 days later	+2.45%	-1.23%
11/25/2025 10:11:27 AM	short term cautious down	5 days later	+2.45%	-1.23%
11/21/2025 4:18:30 PM	medium term cautious down	21 days later	+3.57%	-1.78%
11/18/2025 10:02:58 AM	short term down	5 days later	-2.30%	+2.30%
11/10/2025 7:15:17 PM	medium term cautious down	20 days later	-0.58%	+0.29%
11/10/2025 5:17:27 PM	medium term cautious down	20 days later	-0.58%	+0.29%
11/7/2025 10:50:35 PM	medium term down	21 days later	-0.34%	+0.34%
11/4/2025 2:28:09 AM	short term cautious down	5 days later	-1.13%	+0.57%
11/4/2025 2:28:09 AM	short term cautious down	5 days later	-1.13%	+0.57%
11/3/2025 9:06:33 PM	medium term cautious up	20 days later	-1.25%	-0.62%
11/3/2025 7:15:45 PM	short term cautious down	6 days later	+0.51%	-0.26%
11/3/2025 5:15:56 PM	medium term cautious up	20 days later	-1.25%	-0.62%
11/3/2025 3:04:15 PM	medium term cautious down	20 days later	-1.25%	+0.62%
10/30/2025 5:30:59 PM	medium term cautious down	20 days later	+0.12%	-0.06%
10/30/2025 1:30:10 AM	short term cautious down	5 days later	+1.37%	-0.68%
10/30/2025 1:00:07 AM	short term cautious down	5 days later	+1.37%	-0.68%
10/29/2025 11:38:10 PM	short term cautious down	5 days later	-0.10%	+0.05%
10/29/2025 10:44:00 PM	short term down	5 days later	-0.10%	+0.10%
10/29/2025 10:11:32 PM	short term cautious down	5 days later	-0.10%	+0.05%
10/29/2025 10:00:33 PM	medium term cautious down	20 days later	+0.98%	-0.49%
10/29/2025 9:40:37 PM	medium term cautious down	20 days later	+0.98%	-0.49%
10/29/2025 9:34:46 PM	short term cautious down	5 days later	-0.10%	+0.05%
10/29/2025 9:30:01 PM	short term cautious down	5 days later	-0.10%	+0.05%
10/29/2025 9:19:58 PM	medium term cautious up	20 days later	+0.98%	+0.49%
10/29/2025 9:15:22 PM	medium term cautious down	20 days later	+0.98%	-0.49%
10/29/2025 9:15:00 PM	medium term cautious up	20 days later	+0.98%	+0.49%
10/29/2025 9:08:09 PM	short term cautious up	5 days later	-0.10%	-0.05%
10/29/2025 9:05:01 PM	medium term cautious down	20 days later	+0.98%	-0.49%
10/29/2025 9:02:24 PM	short term cautious down	5 days later	-0.10%	+0.05%
10/29/2025 8:57:22 PM	short term cautious down	5 days later	-0.10%	+0.05%
10/27/2025 1:59:40 PM	short term cautious down	6 days later	+3.09%	-1.54%
10/24/2025 8:55:32 PM	medium term cautious down	21 days later	+3.40%	-1.70%
10/16/2025 6:04:41 PM	short term cautious down	5 days later	-1.35%	+0.67%
10/16/2025 4:52:44 PM	medium term cautious down	20 days later	+2.15%	-1.07%
10/16/2025 4:01:47 PM	medium term cautious down	20 days later	+2.15%	-1.07%
10/15/2025 9:05:27 PM	medium term cautious down	20 days later	+4.55%	-2.28%
10/15/2025 8:00:24 PM	medium term cautious down	20 days later	+4.55%	-2.28%
10/15/2025 5:49:02 PM	short term cautious down	5 days later	-0.33%	+0.16%
10/15/2025 1:03:55 PM	short term sharp down	5 days later	-0.33%	+0.49%
10/15/2025 12:59:00 PM	short term sharp down	5 days later	-0.33%	+0.49%
10/14/2025 11:49:39 PM	medium term cautious up	20 days later	+1.06%	+0.53%
10/14/2025 10:05:13 PM	short term cautious down	5 days later	-1.48%	+0.74%
10/14/2025 9:31:14 PM	medium term cautious down	20 days later	+1.06%	-0.53%
10/14/2025 9:15:03 PM	medium term cautious up	20 days later	+1.06%	+0.53%
10/14/2025 7:56:12 PM	medium term cautious up	20 days later	+1.06%	+0.53%
10/10/2025 6:15:07 PM	medium term cautious down	22 days later	+1.36%	-0.68%
10/6/2025 2:55:45 PM	short term cautious down	5 days later	-1.84%	+0.92%
10/3/2025 6:45:12 PM	medium term cautious up	21 days later	-3.96%	-1.98%
10/3/2025 5:48:20 PM	medium term cautious down	21 days later	-3.96%	+1.98%
10/3/2025 5:24:31 PM	medium term cautious down	21 days later	-3.96%	+1.98%
9/30/2025 10:13:15 PM	short term cautious down	5 days later	+1.36%	-0.68%
9/30/2025 10:13:15 PM	short term cautious down	5 days later	+1.36%	-0.68%
9/29/2025 4:51:12 PM	medium term cautious up	20 days later	-3.91%	-1.95%
9/26/2025 3:41:14 PM	medium term cautious down	20 days later	-3.24%	+1.62%
9/26/2025 7:55:36 AM	medium term cautious down	20 days later	-3.24%	+1.62%
9/25/2025 9:08:46 PM	medium term cautious down	20 days later	-5.04%	+2.52%
9/25/2025 6:06:52 PM	medium term cautious down	20 days later	-5.04%	+2.52%
9/25/2025 4:23:00 PM	medium term cautious down	20 days later	-5.04%	+2.52%
9/25/2025 2:39:06 PM	short term cautious down	5 days later	-1.93%	+0.97%
9/23/2025 8:17:55 PM	short term cautious down	5 days later	-0.14%	+0.07%
9/23/2025 4:45:06 PM	short term cautious down	5 days later	-0.14%	+0.07%
9/23/2025 4:21:15 PM	medium term cautious down	20 days later	-3.01%	+1.51%
9/22/2025 10:12:27 PM	short term cautious down	6 days later	+0.51%	-0.25%
9/22/2025 7:01:00 PM	short term cautious down	6 days later	+0.51%	-0.25%
9/19/2025 7:19:43 PM	short term cautious down	7 days later	-0.05%	+0.02%
9/19/2025 5:36:26 PM	medium term cautious up	20 days later	-2.22%	-1.11%
9/19/2025 4:18:23 PM	medium term cautious down	20 days later	-2.22%	+1.11%
9/19/2025 4:05:04 PM	medium term cautious down	20 days later	-2.22%	+1.11%
9/19/2025 3:30:59 PM	short term cautious down	7 days later	-0.05%	+0.02%
9/18/2025 11:18:42 PM	medium term cautious down	20 days later	+0.22%	-0.11%
9/18/2025 2:13:16 PM	short term cautious down	5 days later	+0.19%	-0.10%
9/18/2025 2:00:01 AM	medium term cautious down	20 days later	+0.22%	-0.11%
9/17/2025 11:14:58 PM	medium term cautious up	20 days later	+0.61%	+0.30%
9/17/2025 10:48:21 PM	short term cautious down	5 days later	+0.39%	-0.19%
9/17/2025 10:45:01 PM	short term cautious down	5 days later	+0.39%	-0.19%
9/17/2025 10:16:13 PM	short term cautious down	5 days later	+0.39%	-0.19%
9/17/2025 10:12:22 PM	medium term cautious down	20 days later	+0.61%	-0.30%
9/17/2025 10:09:39 PM	short term cautious down	5 days later	+0.39%	-0.19%
9/17/2025 10:03:46 PM	short term cautious down	5 days later	+0.39%	-0.19%
9/17/2025 10:00:17 PM	short term down	5 days later	+0.39%	-0.39%
9/16/2025 3:38:44 PM	short term cautious down	5 days later	+1.64%	-0.82%
9/16/2025 3:30:44 PM	short term down	5 days later	+1.64%	-1.64%
9/15/2025 4:08:28 PM	short term down	6 days later	+2.91%	-2.91%
9/12/2025 2:49:43 PM	short term cautious down	7 days later	+2.70%	-1.35%
9/10/2025 2:40:48 PM	short term cautious down	5 days later	+0.37%	-0.19%
9/10/2025 9:59:15 AM	short term cautious down	5 days later	+0.37%	-0.19%
9/8/2025 3:31:50 PM	short term cautious down	6 days later	-0.98%	+0.49%
9/4/2025 5:58:21 PM	medium term cautious up	20 days later	+2.10%	+1.05%
9/3/2025 5:47:14 PM	medium term cautious down	20 days later	-0.69%	+0.35%
9/3/2025 5:46:57 PM	medium term sharp down	20 days later	-0.69%	+1.04%
9/3/2025 4:33:59 PM	short term down	5 days later	-2.44%	+2.44%
9/3/2025 4:33:52 PM	short term cautious down	5 days later	-2.44%	+1.22%
8/29/2025 4:29:23 PM	short term cautious up	6 days later	-5.40%	-2.70%
8/29/2025 2:20:50 PM	short term cautious down	6 days later	-5.40%	+2.70%
8/29/2025 2:11:04 PM	short term cautious down	6 days later	-5.40%	+2.70%
8/29/2025 10:48:16 AM	short term cautious down	6 days later	-5.40%	+2.70%
8/29/2025 10:10:30 AM	short term down	6 days later	-5.40%	+5.40%
8/29/2025 2:27:21 AM	short term cautious down	6 days later	-5.40%	+2.70%
8/28/2025 2:23:04 PM	long term up	60 days later	-5.77%	-5.77%
8/27/2025 5:54:14 PM	medium term cautious down	20 days later	-3.11%	+1.56%
8/27/2025 4:26:23 PM	medium term cautious down	20 days later	-3.11%	+1.56%
8/26/2025 6:50:08 PM	medium term cautious up	20 days later	-5.00%	-2.50%
8/26/2025 8:42:05 AM	short term cautious down	6 days later	+0.92%	-0.46%
8/25/2025 6:17:17 PM	medium term cautious down	20 days later	-5.26%	+2.63%
8/25/2025 5:57:59 PM	medium term cautious down	20 days later	-5.26%	+2.63%
8/25/2025 8:38:14 AM	short term cautious down	7 days later	+0.45%	-0.22%
8/22/2025 11:32:42 PM	short term down	8 days later	+0.05%	-0.05%
8/22/2025 9:51:01 PM	short term cautious down	8 days later	+0.05%	-0.02%
8/22/2025 8:49:41 PM	short term cautious down	8 days later	+0.05%	-0.02%
8/22/2025 8:13:21 PM	short term cautious down	8 days later	+0.05%	-0.02%
8/20/2025 4:24:10 PM	short term cautious up	5 days later	-1.66%	-0.83%
8/15/2025 8:22:39 PM	medium term cautious up	21 days later	-6.80%	-3.40%
8/15/2025 4:22:33 PM	medium term cautious up	21 days later	-6.80%	-3.40%
8/14/2025 11:48:29 PM	short term cautious down	5 days later	-0.74%	+0.37%
8/14/2025 6:32:32 PM	medium term cautious up	20 days later	-3.51%	-1.76%
8/12/2025 11:45:00 PM	medium term cautious down	20 days later	+0.92%	-0.46%
8/12/2025 11:24:12 PM	medium term sharp down	20 days later	+0.92%	-1.38%
8/12/2025 4:25:35 PM	medium term cautious down	20 days later	+0.92%	-0.46%
8/12/2025 7:46:47 AM	short term cautious down	5 days later	+2.43%	-1.22%
8/7/2025 7:17:58 PM	medium term cautious down	20 days later	-1.82%	+0.91%
8/7/2025 6:16:13 PM	short term cautious down	5 days later	-1.10%	+0.55%
8/7/2025 5:34:00 PM	medium term cautious down	20 days later	-1.82%	+0.91%
8/6/2025 4:32:08 PM	medium term cautious down	20 days later	-0.14%	+0.07%
8/6/2025 4:30:01 PM	medium term cautious down	20 days later	-0.14%	+0.07%
8/5/2025 12:45:01 AM	medium term cautious down	20 days later	+0.90%	-0.45%
7/30/2025 11:06:39 PM	medium term cautious up	20 days later	-1.47%	-0.73%
7/30/2025 9:54:37 PM	medium term cautious up	20 days later	-1.47%	-0.73%

Show all 177 yields results

Michael McKee

The Fed held rates at 3.5-3.75%, significantly changed the statement, and split evenly on rate cuts this year. Nine members see at least one increase this year, six see two moves. The median dot moved to 3.75% from 3.375%. For 2026 there are only 18 dots suggesting the Fed chairman did not enter one. The statement was cut to four paragraphs, removing the balance of risks language and concluding with 'the committee will deliver price stability.' GDP forecast cut to 2.2%, unemployment up to 4.3%, PCE inflation raised to 3.6% from 2.7%, core to 3.3% from 2.7%.
Bob

This is a hawkish tilt from the committee. Half the committee expecting rate hikes this year is a real shot across the bow. Nobody at the FOMC thinks inflation will be transitory enough for disinflation by year-end. The Fed chair telling us he can't be bothered with the dots is a slap across the face.
Scarlett

This is a real change in tone and substance pointing to a hawkish committee and a Fed chair doing away with the dots. It will be interesting to see how Warsh frames everything when he speaks.
Rich Clarida

I'm not surprised Warsh didn't submit a dot, but nine participants writing down a rate hike was above what I expected. The big markup in core inflation reflects pressure that is not just pass-through from energy prices but appears more broadly based.
Bob

The last line of the statement says 'the committee will deliver price stability' with nothing about full employment. How do you interpret that?
Rich Clarida

That is an important change to the statement. By statute the Fed has a dual mandate, but we're at or close to maximum employment. I wouldn't read into this that they're abandoning the employment mandate, but it's clearly an important change in language.
Bob

The Fed is concerned by the level of inflation, what they see in the capex cycle, and they're scarred from 2022. They're watching other central banks lift rates and their bond markets responding well. They're getting us ready for rate hikes.
Rich Clarida

There is nothing dovish at first glance in this statement. The sentence 'the committee will deliver price stability' sounds like where Warsh is going to land.
Rich Clarida

I would like Warsh to flesh out how the dual mandate fits into this, and also how he plans to change minds on the committee about balance sheet size given he spent 15 years criticizing the Fed's expanding balance sheet.
Michael McKee

The only reference to the balance sheet is the Fed reaffirming its commitment to ample reserves policy, which is generic enough to encompass both Warsh's desire for a smaller balance sheet and others' desire to maintain the current system. The dot plot is forward guidance - nine people think we'll get a rate increase. If Warsh wants to walk that back, he'll have to do it in the press conference. The worry about inflation has spread, core inflation has broadened out, and they're sending a message they won't let this get out of control.
Bob

We went from 18 dots to 17 dots for 2028. Is there an undercover supporter of Warsh policy in the FOMC?
Michael McKee

There might be someone who supports the idea that the dot plot is not worth considering. The idea that Warsh did not submit a dot tells you he may push to change the dot plot going forward. The statement is four paragraphs, much shorter, with no reference to the employment mandate, nine of 18 members supporting rate hikes this year - being taken as incredibly hawkish. Two-year yields up eight basis points, yield curve flattening.
Rich Clarida

My question for Warsh would be: 'You did not submit a dot today. There's no forward guidance in the statement. Markets are taking the information today as hawkish. Would you be prepared to comment?'
Diane Swonk

I'm not all that surprised. We saw a major move in the minutes to the last meeting where many were moving towards the hawkish camp. Even Fed governors who usually hold their cards close talked about price stability being more important than employment. The focus is on price stability given the stability in the unemployment rate. The Fed is saying they won't take inflation as transitory. Core inflation is not only sticky but may be reaccelerating, beyond energy and tariff shocks, in the core super-services component.
Diane Swonk

None of the inflation expectation measures look unanchored, although consumer sentiment is not high. The decoupling between consumer attitudes and spending reflects the burn of inflation. Manufacturers are front-running future price hikes - that's the exact behavior the Fed is tasked to prevent because hoarding behavior reinforces its own inflation cycle. They're worried about the muscle memory of inflation. Five years in and inflation is still a problem.
Diane Swonk

The service sector has been impervious to interest rate increases. Wages cooled but not enough. Demographic aging pushes up healthcare costs, and inequality allows high-end consumers to spend on premium services, buoying inflation while lower and middle income strata see wages eroded relative to inflation. The Fed must manage to aggregates when the devil is in the details.
Bob

The Fed is telling us we're not at neutral. There's enough dispersion for higher inflation and higher rates. The market was pricing in one rate hike over year-end into next year. The Fed looked at the market and said maybe this is the opportunity to step in and hike rates like every other central bank. The long end of the market likes it - front end up 6-8 basis points, long end down a basis point. A Fed that's vigilant again creates support for the long end.
Diane Swonk

Five years without hitting its inflation target and five years of compounding inflation is a problem. They now have more flexibility with the labor market showing signs of stability. The neutral rate is likely higher than they thought. On top of that, we may need another hike. I still expect two hikes by year-end.
Bob

I think two rate hikes this year is possible. There's a lot of underlying growth and CapEx in the economy, and we don't know whether the Middle East will be worked out.
Matt Luzzetti

This was towards the hawkish end of expectations. Half the dots show rate hikes, six showing 50 basis points or more. The upward revision in core inflation forecast to 3.3% this year and critically 2.5% next year means more than six years into the inflation shock, inflation has still not gone down to 2.5%. That's driving the necessity for potentially higher rates.
Matt Luzzetti

We're just going to get less information in the statement. It'll be interesting to see how much additional information Warsh provides in the press conference. He's been critical of both forward guidance and data dependency. The ultimate question is what we hear from him.
Matt Luzzetti

I want to hear whether Warsh agrees with the skew in expectations that higher rates might be needed to tame inflation. The committee sent a clear signal, the market also believes that, but he didn't submit a dot. Does he agree?
Bob

I would miss the dots. They give us a lot of information. I don't know what being less transparent and more opaque does for the markets or the Fed.
Matt Luzzetti

I don't think I'll miss the dots. Too much focus is put on them. Warsh thinks they don't serve a good purpose for meaningful forward guidance - they're too precise and the market focuses too much on them and not the uncertainty bands. Eventually they will go away, replaced by an SEP showing central tendency and range on Fed funds rate expectations.
Matt Luzzetti

If we don't hear much from Warsh today, I expect we'll hear a lot from other committee members over the next week. But I don't expect Warsh gives up his opportunity to do the press conference - it gives him the first chance to frame the meeting and the dot plot which clearly skews hawkish, and potentially push back if that's what he wants.
Bob

I'd listen to Waller on the FOMC if Warsh takes a backseat. Waller is very reasonable, rational, balanced. Warsh will be fine - he's credible and capable. He didn't go in with the dovish bias we assumed. He's proven he's his own Fed chair and will do what the data tells him.
Bob

I don't think the effectiveness of forward guidance is asymmetrical. The ECB used to ambush the market and it was very disruptive, didn't accomplish anything sustainable. We're in a world with a lot of information and complexity. I want to know how they're thinking about their tools, see detailed forecasts, know what direction they're moving in.
Matt Luzzetti

Warsh might try plausible deniability, but he'll have to present an alternative case because the case presented by the forecast and data is clearly hawkish. The labor market is strengthening or stabilizing, inflation is entrenched at elevated levels and broad-based (not just tariffs), financial conditions are very easy, growth is solid. The Fed very likely could be accommodative at this point. I don't see a strong case to push back against the hawkish view.
Bob

We all thought the hawkish tilt was coming in two or three meetings from now, not this one. The market clearly didn't expect it. The question for Warsh is: removing the dots isn't a regime change, that's part of it. What does he find most outdated about the Fed's framework and how would he change it? The dots are just one component.
Scarlett

We are awaiting Fed Chair Kevin Warsh to step to the podium for the first time. This is the fifth Fed Chair in 40 years. Some say he may go back to the Greenspan era of saying less and keeping the market guessing, rather than the Bernanke/Powell transparency. Yields are higher, stocks are lower - S&P 500 down 0.6%, Nasdaq as well.

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