FOMC Announcement – One and Not Done

In a unanimous decision, the Fed hiked 25 bps, raising the Fed Funds Rate to 3.75%-4.00%.  The move was expected, with the market odds at 92%.  The only question was whether the hike would be hawkish or dovish.  We got our answer.

• Warsh’s explanation was clear and concise.  The labour market is balanced, but inflation still has upside risks.  Thus, hiking was a no-brainer.
• He went on to say he saw scant evidence that rates were restrictive, clearly signalling that further hikes are in the cards.
• The dot plot indicated that the majority of participants see one more hike this year.
• The bond market expects one more hike this year and two more by July 2027.
• The curve flattened, with US 2y yield +5 bps and US 30y -2 bps.

The Chairman is not a fan of forward guidance.  But reading between the lines and the tough talk, the message was: if you like that, there is more to come.