Going into the FOMC, we had 1 rate hike being priced for the rest of the year, although the dot plot gave us a bit more colour on that.
The dot plot was hawkish overall, as we see from comparing the dots to the previous dot plot mapped out in march that the majority of the dots for 2026 and 2027 have moved higher.
https://preview.redd.it/31j6g59a718h1.png?width=1400&format=png&auto=webp&s=27265fb98bc6e2235c6df7dae419e9e54ce77439
Much of that was anticipated I think, as a lot of the Fed commentary over the past 3 months has been increasingly hawkish as inflation has continued to rise, but arguably on the balance, the dot plot was more hawkish than anticipated.
9 out of the 18 members who provided a dot (Warsh didn't) have at least 1 rate hike for the year, which is in line with what expectations were into the FOMC, but where we have the hawkish tilt is the fact that 6 of those 9 dotes have multiple hikes this year.
That's 6 out of 18 overall then, or 33% of members are looking at multiple hikes this year. This is more hawkish than the market was pricing.
In the statement, we saw a shortened statement as the Fed under Warsh is looking to reduce Fed communication, but a key sentence in that press release was that "The committee will deliver price stability". We can infer from this, then, that the focus is on inflation.
The Fed lowered GDP projections to 2.2% from 2.4%, whilst PCE is now projected to be higher at 3.6% up from the March 2.7% forecast.
So the overall communication from the press release was that the Fed is worried about slower growth, and higher inflation.
However, as mentioned previously, the press release is only half of the picture w received yesterday, and I do believe, contrary to other market commentators, that there was enough dovishness from Warsh in the press release to offset some of that hawkishness.
Beyond rambling on about the Task forces that are being employed, key comments from Warsh included:
*FED'S WARSH SAYS FED POLICY APPEARS RESTRICTIVE FOR HOUSING BUT NOT FINANCIAL MARKETS, AND DECLINES TO OFFER ANY FORWARD GUIDANCE ON FUTURE MOVES.*
*Fed's Chair Warsh: The recent past need not be a prologue to inflation.*
*Fed's Chair Warsh noted that dot plot submissions came in with pencils that have big erasers.*
*Fed's Chair Warsh: Policymakers don't feel bound by their dots. I did not hear tons of conviction on the projection submissions.*
I think there's quite a bit to unpack here. Firstly, Warsh is saying that Fed policy is already restrictive for some areas of the economy: that in itself is a dovish acknowledgement.
Then more importantly, Warsh basically told us that whatever came in on the dot plot should be taken with a pinch of salt. The Policymakers do not feel bound by the dots, so there is no guarantee there that we will actually see those 1 or 2 rate hikes that are being forecasted, and the dot plots are being submitted with pencils with big erasers.
This tells us that the dot plot is entirely subject to change. With oil prices coming down after the signing of the MOU, it is hard to say how forward or backward looking the dot plot is. Either way, Warsh is implicitly telling us to not take that dot plot as gospel. IT can easily change.
So the most hawkish element of the FOMC was the dot plot. Then Warsh is explicitly telling us to not read too far into that as it may or may not reflect the committee's views moving forward. As such, Warsh is essentially disregarding the most hawkish element of that FOMC meeting.
Overall, then, I think that this balances out the hawkishness of the dot plot to give us a neutral outcome yesterday. It probably leans slightly hawkish on the whole, but only slightly, and in my opinion, Warsh himself in his press conference was well spoken and tilted dovish.