The Federal Reserve completed its June meeting and the first one with Kevin Warsh as Chairman. The details:
– The Fed kept the fed funds rate unchanged. This was the overwhelming consensus expectation.
– On the dot plot, nine of 19 Fed officials expect an increase in the fed funds rate later this year. (Warsh didn’t participate in the dot plot, so nine of 18 is more accurate.) That was more hawkish than many expected and consistent with DKI expectations where we previously reiterated a return to “higher for longer”. I’ll also note that while the dot plot does indicate intentions, it’s also often inaccurate. DKI analysis from a few years ago indicated that the Fed is terrible at projecting the year-end fed funds rate, which is the thing they actually control so I don’t think the potential future loss of the dot plot is a tragedy for financial analysts.
– Warsh refused to both contribute to the dot plot and also didn’t provide any forward guidance. I’m in favor of this. I previously have said that the Powell Fed was the chattiest I’ve ever seen and frequently joked that if I put a microphone at the end of my driveway on any random Tuesday, there would be at least three Fed Governors who couldn’t resist an open mike and would give a press conference. The constant yapping and contradictory commentary wasn’t helping the process and had the effect of handcuffing officials to opinions they had previously discussed in public.
– The market sold off following the press release due to the more hawkish dot plot. There’s also going to be a task force to examine the Fed’s still massive $6.7T balance sheet. Warsh has said he wants to reduce it, a move I think is appropriate.
In the end, I don’t think this Fed meeting matters. While the market looks to the Fed to manage interest rates out of habit, current inflation is being driven by overspending and money creation out of Congress and interest rates are rising because the bond market is pricing in higher future inflation. The Fed raising or cutting by 25 basis points (.25%) a few times won’t change that.
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