Fed set for hawkish pivot as Warsh chairs first FOMC meeting

The recent positive headlines out of the Iran war will not likely be enough to prevent a hawkish pivot from the Fed at its meeting on Wednesday. Macroeconomic data has rendered inert the bank’s easing bias, as not only are inflationary pressures building, but the US economy and labour market are proving extraordinarily resilient. After a couple of officials voted against the inclusion of the easing language at the last meeting, the next logical step is for it to be removed altogether. This seems likely to us, particularly given that Warsh himself has explicitly voiced his dislike of forward guidance in his previous communications.

With Warsh set to stay tight-lipped on the possible direction of rates, we will be paying close attention to two things: a) the updated dot plot of rate projections, and b) the content of Warsh’s first press conference. An upward revision to the median dot to show no change in 2026 seems on the cards, although we do not think that the FOMC will go so far as to outright signal a hike just yet, which could potentially disappoint markets given that a rate increase is almost fully priced in by year-end. As for Warsh, we will be looking to see whether he outlines his plans for an overhaul of the Fed, namely detailing any proposals for a reduction in the balance sheet and a reduction in forward guidance.