The Decision Was Priced. The Dot Was Not.
The Federal Reserve concluded its June 16-17 FOMC meeting on Wednesday by holding the federal funds rate in the 3.50 percent to 3.75 percent range, in line with the effective rate of 3.63 percent recorded in May. That outcome was never in serious doubt: CME FedWatch had the hold probability above 96 percent going into the release. What was not priced was the meta-decision that Kevin Warsh, in his first meeting as Chair, chose to withhold his own dot from the Summary of Economic Projections. For 14 years the SEP has been the single most market-moving forward-guidance tool the Fed has produced. In one quiet procedural choice, the new Chair signaled that he intends to dismantle it.
Why the Dot Plot Matters and Why Warsh Wants to Kill It
The dot plot is the quarterly publication of each FOMC participant’s anonymous projection for where rates should sit at year-end and through the medium term. It is not a commitment, but it is the closest thing markets have to a collective signal about the Committee’s reaction function. Wall Street read Warsh’s April 21 confirmation hearing as a warning shot: “The Fed tells the whole world what their dots are going to be, what their forecasts are going to be,” he told the Senate Banking Committee. “Then they hold onto those forecasts longer than they should.” His reasoning is that published projections anchor the Committee to a path, compounding errors when the data turns. The 2021-22 “transitory” inflation episode is Exhibit A. In that frame, withholding his dot today is the first step in a deliberate strategy to give the FOMC more flexibility to react to a data regime that includes May CPI at 4.2 percent and unemployment steady at 4.3 percent.
The Geopolitical Variable the SEP Cannot Capture
Two days before the meeting, on June 15, signals of a possible U.S.-Iran peace agreement sent oil prices lower and caused bond traders to sharply revise rate-hike expectations. The CME FedWatch December hike probability fell from roughly 90 percent to 60 percent in a single session. The 2-year yield dropped to 4.01 percent before ticking back to 4.056 percent. Whether Warsh cites geopolitical risk as a relevant disinflationary force in his inaugural press conference, or dismisses it as transitory, will determine how the curve reads the move. New Century Advisors’ Claudia Sahm warned that withholding the dot could look like an attempt to “hide the hawkish shift” in the Committee, and a Fed that “appears to be concealing its own debate could look complacent about inflation, which is exactly the credibility it can’t afford to lose.” That credibility cost is the trade Warsh is making today.
What to Watch in the Next Two Weeks
Three prints will determine whether the withhold-dot strategy buys the Fed flexibility or markets interpret it as drift. First, the post-meeting statement itself at 2:00 PM Eastern today: any change to the language on “data dependent” or “additional firming” tells you whether the median drift is hawkish. Second, Kevin Warsh’s first press conference at 2:30 PM Eastern: his tone on the inflation trajectory and his framing of labor-market resilience will set the communication template for the next eight meetings. Third, the May PCE release on June 27: if core PCE prints above 3.0 percent, the market will re-price a December hike, and Warsh’s choice today will be revealed as either prescient or premature. Dow closed above 52,000 for the first time on June 16, tech sold off, and the 10-year sits at 4.42 percent with the 30-year at 4.92 percent. The fragmented cross-asset tape tells you the market is already treating today’s decision as the start of something, not the end of it.
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