Kevin Warsh's first Fed meeting revealed a divided committee and a growing probability of higher interest rates.
KEY TAKEAWAYS
Fed funds futures have undergone a dramatic shift in 2026. Markets began the year expecting multiple rate cuts and now fully price in an October rate hike.
Kevin Warsh's first meeting as Federal Reserve Chair produced a unanimous vote to hold rates steady. Beneath the surface, the committee's projections painted a much more hawkish picture.
The median Fed projection moved from implying a rate cut to implying a rate hike. Half of participating members now expect at least one rate increase before year-end.
Warsh declined to participate in the dot plot exercise. His absence became one of the most discussed aspects of the meeting and highlighted divisions within the committee.
Persistent inflation forecasts, driven in part by tariff-related cost pressures, are keeping upward pressure on interest-rate expectations. The path toward lower rates appears significantly more challenging than investors anticipated.
MY HOT TAKES
Markets often focus on policy decisions while overlooking the forecasts that drive future policy. The projections released alongside the decision carried far more information than the rate announcement itself.
The Federal Reserve appears more divided than the unanimous vote suggests. The distribution of forecasts reveals meaningful disagreement about inflation and the appropriate policy path.
Inflation remains a structural challenge rather than a temporary disturbance. Policymakers increasingly appear to believe that pricing pressures will persist longer than expected.
Communication changes under Kevin Warsh could alter how markets interpret Federal Reserve policy. The future of forward guidance and the dot plot may be in question.
Interest-rate risk is becoming relevant again for households, businesses, and investors. The possibility of higher rates is no longer a fringe scenario but a central consideration.
You can quote me: "What looked like a boring Fed meeting may turn out to be the most important policy shift of the year."
Actions, not words. Happy New Year! It seems like just yesterday that I was clinking champagne glasses with my family, ringing in 2026. Well, it wasn’t–in fact, it was almost a half a year ago. In reality it was…well…as I was writing this I literally just paused for several minutes to think carefully about what happened in these past almost-six months. I am going to partially retract my opening assertion that January 1st seems like yesterday. In its place I am going to submit to you a chart–something I haven’t done in a while, realizing that many of you read this on a device that might not allow you to get the full effect of the graphic, but this one tells an important story. Check it out, then keep reading.
This is a chart that shows the probability of a rate HIKE in October, based on Fed Funds Futures. You can see that at the beginning of 2026–a LONG TIME AGO–the market predicted a 100% probability of two rate CUTS in the fall. By following the white line from left to right, you can see how that picture changed drastically once the US went to war with Iran in the late days of February. By the end of March, rate cuts were off the table. By mid-May, a respectable probability of a rate HIKE entered the realm of possibilities. On Wall Street, we use the 50% mark to label something as probable–better odds than a coin toss. That is where it was yesterday morning as freshly minted Fed Chair Kevin Warsh put on his necktie and readied himself for his face-to-face introduction to Wall Street, America, and the World. To be clear, he is no mystery man. We know him as first, a disgruntled FOMC member who rage-quit the Fed in the post GFC days, and then as a terminal critic of the FED documenting his musings on the central bank, which was heavily ridden with hawkish spice. Going into this week's meeting, anyone on Wall Street who follows this stuff was well-prepared for what we got. The rest of the world? Maybe not so much.
We got our “heeeere’s Kevin” moment and–well, the smoke has not quite cleared yet, but what is most important can be found at the right-most edge of that chart above. 🙃 By this morning, the probability of a 25 basis point rate hike in October sits at 100%, AND there is a 16% chance of another 25 basis point hike! Let’s get into it a bit further this morning, because, my friends, if interest rates are important to you directly or indirectly, you need to know this.
Let’s start with the headline and work our way down. Yesterday, at 2:30 PM Wall Street Time, Kevin Warsh walked into his first Federal Reserve press conference as Chair and delivered what looked like calm. A unanimous 12-0 vote to hold rates. A statement so stripped down it barely filled half a page (not gonna lie, I literally refreshed my screen several times, because I thought that I was missing half the statement 🤣). The message Wall Street heard: steady as she goes.
They missed the real story entirely.
While Warsh was projecting serenity from the podium, his own committee was quietly detonating a bomb inside the Summary of Economic Projections (also known as the SEP). Nine of the eighteen participating members–half the room–just projected at least one interest rate hike before the year is out. The median dot for year-end 2026 jumped from 3.4% to 3.8%. And Warsh himself? Well, he didn't even submit a dot at all.
My friends, welcome to the rogue Fed!
Here is what the dot plot actually tells us if you look past the headline. The March projection median sat at 3.4%, which implied a rate cut before year-end. The March dot plot was, in the words of my friend from my morning ferry ride who texted me yesterday afternoon, "fully priced in." He called the whole meeting a non-event. I told him to slow down and look past the vote. He was quiet for a moment. That pause told me everything I needed to know about how Wall Street was reading this–and how badly they might be getting it wrong. The unanimous 12-0 vote is the symptom. The dot plot is the cause. And the cause was screaming.
Three months ago, the median dot sat at 3.4%. Yesterday, it moved to 3.8%. Since the current Fed Funds rate range is 3.50% to 3.75%, let me be very precise about what that means: a median projection of 3.8% does not just cancel out a cut. It officially projects a hike. The committee did not merely remove its easing bias–it flipped the table. And it gets more interesting when you look at the distribution. Of the eighteen members who participated in the dot exercise, nine projected at least one hike in 2026. Six of those nine went further and projected multiple hikes. The other nine see rates flat or lower. That is a 50-50 split inside the most powerful monetary policy body in the world, and the man who presides over that body–didn't even put a dot on the page. That is not a unified institution projecting calm. That is a civil war conducted in anonymous quarter-point increments.
Let's talk about that missing dot for a second, because it is the most revealing data point of the entire meeting. Warsh confirmed at his press conference that he declined to participate in the SEP–the Summary of Economic Projections–at all. His stated rationale: long-held views against forward guidance. At his Senate confirmation hearing he told lawmakers directly, "I don't believe in forward guidance." He followed through on day one. He also announced task forces to review the Fed's entire communications architecture–the press conference format, the statement language, the meeting cadence, and yes, the dot plot itself. I was live blogging through the press conference from a news network green room, and when I watched that passage, I warned the viewers that yesterday may have been the last dot plot we ever see from the Federal Reserve.
Think about that for a second. The most widely followed interest rate signaling tool in global finance may be heading for the scrap heap.
But here is what Warsh's silence actually communicated, whether he intended it to or not. Had he submitted a dot showing rate cuts, he would have been publicly out of step with half his committee–and with an inflation backdrop that makes cuts very difficult to justify. Had he submitted a dot showing a hike, he would have been handing ammunition to critics who believe he is too hawkish and creating friction with an administration that has made no secret of its preference for lower rates. So he submitted nothing. Smart politics. But his own members were not so circumspect. Their inflation forecasts–core PCE for 2026 jumping from 2.7% all the way to 3.3%, headline PCE from 2.7% to 3.6%--are not subtle. The regional presidents looked at the same data Warsh is looking at, and they called it what it is. He can decline to submit a dot. He cannot decline to read the room.
Now let's bring this home, because the–what I am calling–October Reckoning is not an abstraction. It lands on kitchen tables. I want you to think about the Miller family (my oft-used literary proxy for everyday American families) for a moment. The Millers spent three years waiting for the Fed to cut rates and give them some relief. The adjustable-rate mortgage that was creeping up. The home equity line they tapped when prices were peaking. The car note that hit right as rates were at their highest. They finally exhaled in late 2025 when the Fed made its cuts and the long-awaited rate relief started to materialize. The Millers thought the coast was clear. They were wrong.
Here is what a single 25 basis point rate hike looks like in real money for the Miller household. On a $400,000 mortgage, that quarter-point move translates to roughly $65 more per month, which is over $780 a year, just gone, before they buy a single grocery. On a $35,000 car loan at a typical 60-month term, it adds approximately $40 to $50 per month to the payment. And on a $10,000 credit card balance, where variable rates are already running north of 20% for millions of American households, another 25 basis points is salt in a wound that never fully healed. Now remember: six of the eighteen FOMC members are not projecting one hike. They are projecting multiple. If we get two 25 basis point hikes before year-end, you can double those numbers. The Millers are not done yet.
Here is the part that I want you to understand at the cause level, not just the symptom level. The reason inflation is stuck at 3.3% on core PCE–the Fed's own preferred measure–is not an accident and it is not temporary. It is the tariff conveyor belt, and it does not stop moving just because a ceasefire gets signed in the Strait of Hormuz or a trade negotiation makes progress in Geneva. Section 301 tariffs, Section 232 tariffs, the 10% global surcharge–all of that has been pricing itself through the supply chain every single day since those measures went into effect. Importers paid higher costs. Manufacturers passed them through. Wholesalers marked up. Retailers followed. By the time the price increase shows up in the CPI or the PCE, it has already traveled the entire length of the pipeline. Unwinding that is not a political decision. It is a multi-quarter mechanical process, and the Fed's members know it. That is why their inflation forecasts look the way they do. They are not guessing. They are reading the conveyor belt.
So what do you actually do with all of this? Three things to watch and three things to consider acting on.
On the watch list: keep your eyes on the September FOMC meeting. That is the next real decision point, and by then the committee will have had two additional months of inflation readings and labor market data to work with. Watch also whether Warsh eliminates the dot plot going forward. If he does, the Fed becomes significantly harder to read in real time, and you should expect volatility to spike around every meeting. And watch core PCE month by month. If it breaks convincingly back below 3.0%, the October hike becomes less certain. If it stalls at 3.3% or drifts higher, October is locked and the question becomes whether December joins the party.
If you are carrying adjustable-rate debt of any kind–a HELOC, an ARM, a variable-rate personal loan–it is worth understanding what your exposure looks like before October arrives, not after. The conversation with your advisor about fixed-rate options is one worth having in the near term. If you are managing a portfolio, the relationship between rate direction and fixed-income positioning is worth revisiting–duration has not mattered this much in two years. And if you are a business owner with a variable-rate credit line, your cost of capital calculus may look different by year-end than it does today. None of this is a prediction. It is a set of questions worth asking.
Kevin Warsh walked into his first press conference yesterday wanting to project a new era of quiet confidence at the Federal Reserve. What he got instead was a committee that handed Wall Street–and the world–a very loud message about where inflation is and where rates may be going. The unanimous vote was the curtain. The dot plot was the show. And the October Reckoning, my friends, is now on the calendar.
YESTERDAY’S MARKETS
Yesterday, equities sold off sharply following the Federal Reserve's hawkish dot plot revision, with the Dow Jones Industrial Average falling 507 points, or 0.98%, to close at 51,492, while the S&P 500 declined 1.21%, and the Nasdaq Composite shed 1.34%. The 10-year Treasury yield rose to close at 4.46%, up approximately 3.5 basis points on the day, as bond markets repriced for a higher-for-longer rate path. WTI crude oil settled at $76.79. All three major equity indexes had traded higher earlier in the session before reversing sharply following the 2:00 PM release of the Summary of Economic Projections.
NEXT UP
Initial Jobless Claims (June 13th) is expected to come in at 225k after revealing 229k claims last week.
Leading Economic Index (May) probably ticked up by 0.1% for a second straight month.
Markets are closed tomorrow for Juneteenth. Next week we get PMIs, more housing numbers, GDP, Personal Income, Personal Spending, PCE Price Index, and Durable Goods Orders. You better check in next week and get details–if you want to avoid being left in the dust.