The Federal Reserve’s Federal Open Market Committee voted 12-0 on Wednesday to keep the federal funds rate anchored at 3.5%-3.75%, but the substance of the decision was in the new Summary of Economic Projections, not the rate. In his first meeting as chairman, Kevin Warsh steered the committee to a shorter, sharper statement and watched the median 2026 dot climb to 3.8% — roughly 0.16 percentage point above the current target, a level that signals at least one hike is now back on the table for this year.
The Dot Plot Flipped, and Warsh Withheld His Own
Eighteen of the nineteen possible dots were submitted, with one missing: Warsh’s. The new chair, who has been publicly critical of forward guidance, confirmed at his press conference that he declined to share a forecast. “I did not submit a dot for me,” he said. “It’s not helpful in the conduct of policy.” The committee’s median 2026 funds-rate projection rose from 3.4% in March to 3.8% in June, reflecting the durability of an inflation surge tied in part to the Iran conflict. The dispersion also widened: eight members see no change this year, one sees a cut, and nine see at least one hike. The long-run dot held at 3.1%.
130 Words, a $6.7 Trillion Balance Sheet, and Three Dissents Gone
The post-meeting statement checked in at 130 words, less than half the 341-word April release. Warsh cut the language signaling a future easing bias and trimmed the policy section to two paragraphs. There was no forward guidance, no hint of a cut path, and no dissent — notable because the April decision drew three dissents from regional Fed presidents who wanted to preserve a two-sided option. The statement reaffirmed the Fed’s “ample reserves” operating regime, indicating that no near-term changes are coming to the central bank’s $6.7 trillion balance sheet even as Warsh has previously advocated a faster runoff.
Curve and Dollar Are Now Trading the Policy Reaction Function
Markets are repricing for a regime in which the committee’s tolerance for above-target inflation is higher than the post-2022 baseline suggested. The 2-year Treasury yield rose roughly 8 basis points to about 4.05% on the day, the 10-year climbed about 6 basis points to around 4.32%, and the 2s10s spread compressed further toward 27 basis points — the flattest curve since March 2023. The dollar index firmed near 104.20, gold held above $4,300 an ounce as real yields rose, and equities sold off into the statement, with the S&P 500 down about 0.55% and the Dow giving back 0.38% after touching a record high earlier in the session. WTI crude drifted higher near $74.20 as traders watched for any Iran-related headlines that could feed the next inflation print.
What Comes Next: PCE on June 27, Sintra, and Jackson Hole
Three prints and three forums will define the rest of the second quarter. First, the May PCE release on June 27 — a core reading above 0.27% month-over-month would validate the new hawkish dot, while a print at or below 0.22% would reignite the cut narrative that Warsh just deemphasized. Second, the ECB’s Sintra Forum on June 24-26 will give Warsh his first on-stage encounter with Christine Lagarde and Andrew Bailey in a setting designed to telegraph policy convergence or divergence; Sintra has moved euro-area curve pricing materially in three of the last four years. Third, Jackson Hole in late August is the first opportunity for Warsh to deliver a framework speech — likely on the communication review he announced Wednesday — and the September SEP will be the first dot plot printed entirely on his watch. If Warsh follows through on his threat to retire the dot plot, the 2026 hike repricing has to be read against a different information set by year-end. Until then, the market is trading the policy reaction function, not the rate level, and the policy reaction function just got hawkish.