A New Era at the Fed. Warsh Sets the Tone.

Kevin Warsh presided over his first Federal Open Market Committee meeting and ushered in a new era and style of Fed governance. The decision of the meeting, the Fed funds rate* remaining unchanged at 3.50-3.75%, was largely secondary to how it was delivered. Chairman Warsh’s statement was brief, direct, and simple.¹ He wants markets to look at the data the Fed presents, not the language used to present it.

He did not submit any forward guidance in his prepared remarks, a first for an FOMC chairperson since it was introduced, and announced the creation of five new task forces to consider improvements to the existing Fed communications, policies, and process across its remit. He also declined to submit his economic projections.

The rest of the committee did submit their economic projections with half (9 of 18 with Warsh, the 19th abstaining) indicating a hike likely coming before the end of the year.

The markets reacted immediately with the US Dollar Index (DXY) surging to a one-year high on the hawkish signaling. Inflation continuing and higher-for-longer rates supported this push and it hasn’t retraced the move.

"The dollar is the cleanest signal on how this landed. It pushed to a one-year high because the market heard a Fed in no rush to cut, and higher-for-longer rates tend to pull the dollar along with them."

Jake Behan, CMT - Head of Capital Markets, Direxion

With guidance likely to be limited moving forward, every data release will turn into a sharper catalyst as traders can’t rely on the previous level of verbiage from the FOMC and will need to lean more on the indicators from the Bureau of Labor Statistics (BLS). Keeping a closer eye on the calendar and economic forecasts like Bank of America’s forecast for three 25bp hikes before the end of 2026² is going to be required for anyone wanting to trade either side of the reactions.