Tl;dr: No rate change (as expected) but a dramatically hawkish shift in The Fed's bias (9 members seeing at least one hike this year). Statement smilled down dramatically, also biases towards hawkish focus on price stability (inflation) over employment: "The Committee will deliver price stability".

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Since the last FOMC meeting (Jay Powell's final one as Fed Chair) on April 29th, markets have shifted sharply with oil plunging (along with weakness in gold and bitcoin) while stocks have rallied sharply (shrugging off a brief dip) with bonds unchanged and the dollar modestly stronger...

The US macro-economic data has surprised considerably to the upside since the last FOMC (with strong 'hard' and 'soft' data and the labor market showing significant resilience)...

With both Growth and Inflation signals rising (a dilemma for The Fed)...

Additionally, the market has shifted significantly more hawkish since the last FOMC (still pricing cuts) and obviously dramatically more hawkish since the start of the war...

But this Fed meeting is different as Kevin Warsh takes the mantle from Jay Powell (who remains on the board) as Fed Chair with the key risk for markets is that expectations for a dovish Warsh have become elevated.

So What Did The Fed Do?

The Fed left rates unchanged as expected:

• FED HOLDS BENCHMARK RATE IN 3.5%-3.75% RANGE IN UNANIMOUS VOTE

• NO DISSENTS

And the statement was dramatically shortened, entirely dropping paragraph 4:

• FED REMOVES STATEMENT REFERENCE TO ADDITIONAL RATE ADJUSTMENTS

No forward guidance in the statement

Read the full red-line below:

Balance Sheet

The Federal Open Market Committee on Wednesday adjusted the language of its policy implementation note to reflect that it instructs the Open Market Desk at the New York Fed to increase its purchases of Treasury bills “when appropriate.”

• According to the implementation note FOMC instructed, “When appropriate, increase the System Open Market Account holdings of securities through purchases of Treasury bills and, if needed, other Treasury securities with remaining maturities of 3 years or less to maintain an ample level of reserves”

• That compares with the April memo, which said: “Increase the System Open Market Account holdings of securities through purchases of Treasury bills and, if needed, other Treasury securities with remaining maturities of 3 years or less to maintain an ample level of reserves”

The 'Dots'

The 'Dots' are clearly signaling an end to the 'easing bias' of the prior Fed: with nine members seeing at least one rate hike this year:

2026 dot distribution changes:

• 3 rate-hikes: from 0 to 1

• 2 rate-hikes: from 0 to 5

• 1 rate-hike: from 0 to 3

• No rate change: from 7 to 8

• 1 rate cut: from 7 to 1

• 2 rate cuts: from 2 to 0

• 3 rate cuts: from 2 to 0

• 4 rate-cuts: from 1 (Stephen Miran) to 0

Only 18 of 19 officials submitted their 'dots' with some suggesting Warsh himself did not contribute

Could this be the last time we see the 'Dots' (with Warsh's notable rejection of forward guidance)?

Economic Projections

The new inflation forecasts are really not good.

Core PCE is seen rising 3.3% this year, well above the 2.7% penciled in back in March.

That means no disinflation from right now, because the most recent core inflation reading was indeed 3.3%.

But, the median forecast of those submitting projections shows inflation slowing to 2.5% next year, but still notably up on 2.2% last time.

Growth is also seen slowing...

...but unemployment improving

All eyes now on Warsh's first press conference as Fed Chair which is likely to be the most important event risk of the meeting.

Will Trump react to the lack of a rate-cut?