Warsh’s first FOMC meeting on June 17 will not be remembered for the rate decision, which is priced at 97% probability of a hold at 3.50 to 3.75 percent. It will be remembered for the dot plot, the press conference, and what they reveal about a fractured committee in the middle of a 30-year yield breakout that is now the most important trade in fixed income.
The Decision Is Priced. The Dot Plot Is Not.
Federal funds futures imply a 97% chance the FOMC holds the target range at 3.50 to 3.75 percent on Wednesday, with 19 anonymous SEP dots determining the 2026 median and the dispersion around it. The April 28-29 meeting ended 9-2 with Stephen Miran dissenting in favor of a cut and Patrick Harker, Neel Kashkari, and Lorie Logan objecting to the statement language. The March SEP put the 2026 median at 3.13 percent, implying two cuts; May CPI at 4.2 percent headline and 2.9 percent core, plus May NFP at 138,000 against 180,000 consensus, has likely dragged that median up to 3.25 to 3.38 percent, implying one cut or zero. The bond market is trading the spread around the median dot, not the median itself, and that is the cleanest read on committee fracture.
Why the 30-Year Is the Trade, Not the Front End
The June 12 30-year auction cleared at 4.84 percent with a 2.31 bid-to-cover and 24.1 percent primary-dealer take-up, the weakest tail of the year. The 2s10s curve flattened to 22 basis points, the flattest since March 2023, and the 5s30s curve briefly inverted to minus 3 basis points. Mortgage spreads at 198 basis points are the widest since November 2022, and the August refunding announcement is likely to lift coupon issuance by 4.2 percent. The trade is slope, not level: the 30-year will test 5.00 percent before Jackson Hole in August, and the 2s10s slope at the close on Wednesday is the cleanest read on whether the long end accepts the dot plot or fights it. The front end at 3.96 percent on the 2-year is range-bound; the long end at 4.78 percent on the 30-year is the trade.
What the Press Conference Has to Navigate
Kevin Warsh takes the podium at 2:30 PM Eastern on Wednesday with a $6.7 trillion balance sheet, a runoff plan that has not been updated since 2022, and a labor market that just printed its third consecutive payrolls miss. Average hourly earnings at 3.6 percent year over year is the slowest since June 2021, and the supercore services CPI at 3.2 percent is still above the 2.5 percent the staff assumed in March. The question is not the rate; the question is the QT plan and the language on the SEP. Two hawkish dissenters in April, plus two members who objected to statement language, are the most internal disagreement on the FOMC in two decades, and the bond market is trading the spread around the median dot, not the median itself. Warsh inherits a balance sheet that is now larger in inflation-adjusted terms than at the peak of QE3, and the runoff pace at $25 billion per month in Treasuries is no longer enough to offset the debt-issuance pipeline the Treasury is now running.
What to Watch at 2:00 PM and 2:30 PM
Three things matter on Wednesday. First, the 2026 dot plot median: 3.13 percent means two cuts, 3.25 to 3.38 percent means one cut, and 3.50 to 3.63 percent means zero cuts. Second, the dispersion of dots: if three members are above 4.00 percent and three are below 3.00 percent, that is the cleanest signal of internal fracture the market will get, and it is the single most important number in the entire SEP. Third, Warsh’s press conference language on QT: any softening on runoff timing, coupon mix, or the duration of the balance-sheet glide path is a steeper-curve trade and a weaker-dollar trade, and the FX market is already positioned for it. The 2s10s slope at the close is the cleanest read on whether the long end accepts the dot plot or fights it, and the 30-year auction next week will be the second confirmation. Until then, the front end is range-bound, the long end is the trade, and the Fed is the only story that matters.