Chair Kevin Warsh walks into his first FOMC meeting on Tuesday with a problem he did not inherit but now owns. The dot plot he is about to release is the first of his tenure, the first written under a 4.2 percent headline CPI print, and the first the markets will read as a verdict on whether the rate-cutting cycle that began in September is already over. The hard part is what comes next, and the dot plot is where Warsh gets to make his first public statement about it.
The Inflation Print That Refuses to Cooperate
The May CPI report, released on June 10, was a clean break from the disinflationary glide path. Headline inflation accelerated to 4.2 percent year over year, the highest since April 2023, with energy up 23.5 percent. Core inflation was 2.9 percent, well above the 2 percent target. Supercore services ticked up to 3.2 percent. The Bureau of Labor Statistics revised April core CPI up by one tenth, eliminating the soft patch the Fed had pointed to. Warsh is not going to pretend otherwise. The market reaction was immediate: two-year Treasury yields jumped eleven basis points to 3.96 percent, the dollar index closed at 104.1, and the S&P 500 set a fresh record, with energy and financials doing the work.
The Dissenters Are Not Going Quietly
April minutes made clear the committee is no longer operating with a consensus view. Governor Miran dissented in favor of a quarter-point cut, citing softening in the labor market. Cleveland Hammack, Minneapolis Kashkari, and Dallas Logan objected to the language characterizing inflation as transitory. Their concern was that the language was inconsistent with the data. Warsh inherits a committee split three ways: doves, hawks, and a center that wants to wait for two more prints. Warsh confirmation hearings in March gave a clear preview: he said the committee should be guided by the data, not by the calendar, and that he would be unwilling to pre-commit to a rate path the data does not support. The dot plot will show a median 2026 year-end rate of 3.50 to 3.75 percent, unchanged from the March plot.
What the Bond Market Is Telling the Fed
The thirty-year Treasury auction on June 11 was the worst tail of the year. The high yield cleared at 4.84 percent, the highest since November 2023, with the bid-to-cover ratio falling to 2.31. Indirect bidders took 64.2 percent, down from 70.1 percent in May. Domestic dealers absorbed more of the issue than they had in any auction since the November 2023 back-up. The Treasury market is pricing in a higher-for-longer path. Warsh cannot ignore an auction that cleared eight basis points through the when-issued level. The dot plot will need to at least match the bond market read, or risk a further re-pricing that would tighten financial conditions at exactly the wrong moment. Quantitative tightening has been running at sixty billion dollars a month in Treasuries since June 2024. The June statement is the natural venue to address the runoff.
The September Cut Is Not the Story
Markets are pricing a 41 percent probability of a September cut, down from 56 percent before the May CPI print. The Fed funds futures curve has shifted 22 basis points hawkish, and the SOFR curve now implies one quarter-point cut by year-end and a terminal rate of 3.25 percent by mid-2027. The story the market is telling itself is that the September cut is in jeopardy. The story Warsh is likely to want to tell is different. He is not going to want the dot plot to be read as a hawkish hold, because the political cost of being seen as the chair who ended the cycle would be high. The compromise is a dot plot that holds the median at 3.50 to 3.75 percent, distributes the dots more widely, and uses the press conference to reframe the conversation around the data calendar. The data calendar is dense: June CPI on July 15, July nonfarm payrolls on August 1, and Jackson Hole on August 21 to 23. The dot plot is the opening move in a four-month sequence, not the final one.
What the Calendar Says Next
Warsh has eight weeks to build the case for the September meeting. The June statement, released Wednesday at 2:00 p.m. Eastern, will be the first read on whether he is leaning hawkish or balanced. The Summary of Economic Projections will contain the new dot plot, and the press conference at 2:30 will be the venue at which Warsh gets to frame the narrative. The cleanest possible outcome is a statement that acknowledges the May CPI, holds the policy rate, keeps the runoff language unchanged, and pairs it with a dot plot consistent with one cut by year-end. That outcome would validate the market current pricing and give Warsh the room to make the September decision on the basis of the data. The bond market has already done the work. The Treasury curve has re-steepened, the auction tail has cleared at the highest yield of the year, and the dollar has reversed its two-month drift lower. The cleanest read of the data, the auction, the dissent, and the curve is that the committee will hold the line in June, distribute the dots more widely, and use the press conference to reframe the conversation around the calendar. The story is not the September cut. The story is the dot plot, and the dot plot is a hold. The macro story has not finished writing itself.