Why the June 17 dot plot put a 2026 hike back on the table
Kevin Warsh’s first meeting as Federal Reserve chairman delivered a unanimous 12-0 hold at 3.5%-3.75% on June 17, but the dot plot quietly removed its prior signal of one 2026 cut and pushed the median end-of-year fed funds estimate up to 3.8%, a quarter-point above the current target range. With nine of eighteen dots now sitting above current rates, eight at current, and one below, the Committee has flipped from a cutting bias to a hiking bias in a single release. The next print on June 27 will decide whether that median sticks or whether the data can pull it back.
The 9-of-18 distribution above current is the number that matters
This is the first Summary of Economic Projections since 2022 in which the median dot sits ABOVE the current target range, and the dispersion makes the shift more durable than the headline number. A median of 3.8% with nine dots at 4.0% or higher means the central tendency is held up by a real hawkish wing rather than rounding, and any incremental hot data point between now and the September SEP now pushes the median further rather than just trimming the dovish tail. Warsh’s decision to withhold his own dot in his first meeting, framed as giving the Committee room to find its voice, has the secondary effect of removing the chair’s historical role as a median anchor and turning every subsequent dot into a tighter market signal.
The long end priced the hawkish tail before the SEP printed
Two-year yields ended the June 17 session at 3.94%, the highest level since November 2024, and SOFR futures now price just eighteen basis points of cuts through year-end compared with forty-seven basis points priced at the start of June. The long end has done most of the work: the ten-year closed at 4.42%, a 28-basis-point move higher since the May CPI shock, and the thirty-year crossed 4.71% intraday. That repricing has been driven less by the dot plot itself than by the SEP’s parallel upgrade to the 2026 inflation forecast, which now sits at 3.6% headline and 3.3% core, up from 2.7% across both measures in March.
May core PCE on June 27 is the print that locks the median
Markets treat core PCE’s services-ex-housing line as the cleanest read on whether inflation is durably above the 2% target, and May CPI already printed a 4.2% headline and 2.9% core, the highest annual readings since 2023. Energy supply effects from the Iran war have continued to pass through into services categories, and the base effects from last spring’s softer prints are now rolling off. A core PCE print above 2.8% on June 27 would confirm that the 2026 inflation cohort is structural rather than transitory and would lock in the dot-plot median at 3.8% through year-end, while a print closer to 2.5% would reopen the door to a single cut and pull the median back to the March projection of 3.4%.
Through July 4, the long bond is trading the policy reaction function
Markets will trade the policy reaction function from now until the June 27 release, with each Fed speaker between now and then tested against the new SEP inflation path. The July 5 payrolls release and the July 11 CPI print will give the Committee its second consecutive hot inflation cohort and either reinforce or soften the 3.8% median. Until the data prints, term premium is trading the path rather than the destination, and Warsh’s first act as chair will be to set his own voice on the data rather than the data of his predecessor.