- The Inaugural Warsh-Led FOMC meeting showed significant regime change – most notably with the removal of forward guidance
- Reduced forward guidance likely leads to more data-dependency and uncertainty around the path of interest rates, leading to higher term premiums and steeper-yield curves
- The hawkish tilt of the Fed has shifted the 2-year portion of the curve to the steepest point. Risk-reward is now in favour of short-duration IG credit – represented by our Liquid+ strategy
- The hawkish turn and lower forward guidance once again raise risks for ultra-long duration bonds. Investors’ bond portfolios should remain on the shorter end of a 5-7 year duration bucket
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Dawn of a new Fed. The new Fed Chair, Kevin Warsh, made his mark by leaving out his dot; we think it communicates a lot by saying nothing at all (more on that later). First, the facts: Markets interpreted the inaugural Warsh-led Jun 2026 FOMC as a hawkish hold, with nine officials predicting higher rates for 2026, completely reversing the rate-cutting script initially communicated in the March dots. The shift higher was on the back of inflation persistence and a strong labour market, with Warsh himself leaning hawkish in the press conference, placing strong emphasis on restoring price stability. The reactions were textbook – market pricing for the fed funds rate at end-2026 rose by c.20 bps, with one full hike priced in by October this year.
Reading between the lines. For more than a decade (since 2012), markets have grown accustomed to the “dot plot” – a scatterplot showing the (median) opinion of 19 people on where they think the price of money should be over the next few years. This is the closest thing to soothsaying we have in modern finance; as a result, hordes of investors, economists, and bankers would often pore over these newly released plots over several months to divine where asset prices might be in the future. But days ago, only 18 dots surfaced where 19 should have been. The chairman’s dot – arguably the most important one – was absent. Mathematicians would tell you that one data point would never be able to shift the median result, but this was never about setting rates. The greater point of the missing dot – one that should not be missed – is that forward guidance is now decidedly behind us.
Say less. More than withholding his dot, Warsh shortened the post-meeting statement and removed forward guidance (including the phrase that hinted at future easing). One could argue that this was necessary for the times. Firstly, forward guidance only became more useful as a policy tool in the post-GFC era where rates were already floored at the zero-bound; without the ability to lower rates, the Fed needed policy communication as a dovish lever to signal intent. With rates above neutral today, there is now a much larger buffer for shifting rates as is necessary. Secondly, the Fed itself (nor anyone else, for that matter) are not good at predicting rates. The dot plot “commitment” often becomes a handcuff that hinders flexibility and raises risks; one could argue that the 2023 banking crisis was exacerbated by an overextended commitment by the Fed to “lower-for-longer” rates, resulting in several banks taking excessive duration risks. Should forward guidance be further pared back, greater uncertainty is likely to be priced into bond markets, resulting in rising term premiums.
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Related insights
- Research Library24 Jul 2026
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Related insights
- Research Library24 Jul 2026
- Malaysia: Solid fundamentals anchor financial market confidence 24 Jul 2026
- FX Tactical Ideas: Event Risks Ahead for USD24 Jul 2026