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The knee-jerk move for stocks was to the downside.

Hot Tub Warsh-ing Machine

By Luke Kawa via Sherwood news <— Click here for article

In an incredibly brief statement, the Federal Reserve voted to keep rates unchanged at a range of 3.5% to 3.75%, as was universally expected. The release eliminated any hints as to the future for policy rates. Its April statement included the phrase “in considering the extent and timing of additional adjustments to the target rate,” which was a nod to the idea that another cut was more likely than a shift towards hikes. At that time, three monetary policymakers dissented, preferring that this easing bias be removed. Today’s unanimous vote suggests that members are aligned on this matter, given the renewed strength in labor market data since May and the stickiness of inflation.Of course, hints on the outlook for short-term rates can still be divined through the dot plot, and that came out on the hawkish side. The median Fed official thinks the policy rate should be at 3.75% if the economy evolves in line with their expectations, which implies a hike is seen as more likely than a cut. Wall Street had anticipated that the 2026 dot would rise to only 3.625% from 3.375%. The S&P 500 and Nasdaq sold off following the statement and projections; Treasury yields rose. Stocks pared some of their losses during new Chairman Kevin Warsh’s press conference.

THE TAKEAWAY Warsh has often suggested that the central bank over-communicates with markets, and his proclivity for brevity is reflected in today’s press release. During the press conference, he positioned himself as a reformer, outlining different task forces he’s establishing in an attempt to improve the conduct of monetary policy and economic outcomes. Prediction markets now see a hike in July as more likely than a cut, a reversal of what was priced in ahead of this event. They also price in a greater risk of an interest rate hike before the year is out, with those odds rising to about 60% from roughly 40%*.