New chair, new outlook

No rate change is expected at this week’s FOMC meeting. Rates should remain in the 3.50%-3.75% target range. This is Kevin Warsh’s first meeting as Fed Chair, and it includes a Summary of Economic Projections (SEP, or “dot plot”) along with his post-meeting press conference. According to Fed Funds Futures, the probability of “no move” is 97.1% (see chart below. No economist in recent Reuters polling expects a cut, and a hike is extremely unlikely now. The statement is likely to drop or soften any remaining easing bias language, moving toward a more neutral stance. This reflects persistent inflation and a resilient labor market, keeping the door open for potential hikes later in 2026 rather than cuts. The key item on the agenda is Warsh comments during his press conference: his tone, a potential change in the press conference style, and any changes in forward guidance will be closely scrutinized. He may not hold press conferences after every meeting going forward. The dot plot and an update on the Fed’s balance sheet runoff ( QT/QE) are also important points the market will be paying attention to. Warsh needs to create a good relationship with the bond market. That’s the key. Most of his comments will look to calm inflation fears and provide a sense of control when it comes to price stability.

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