Hi YXI friends,

First, I have some great news to share on the Signals service. Since April, I have been working on a multi-model approach to our ML/AI signals. After endless rounds of robustness backtests, I am now happy to migrate to the new system in the next few days. I will publish a comprehensive guide on this upgrade soon.

Separately, as our Macro updates are now weekly, every Monday, I will provide more thorough updates on how we should think about the Fed in this new era today.

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The first thing one notices about the latest FOMC statement is its short length. The statement has gone from a one-pager to a half-pager, with the forward guidance taken out.

Similarly, Kevin Warsh’s press conference remarks were very short and to the point. He said less about the policy decision itself than about the new five task forces that the Fed will deploy to revamp its approach.

It may be that, in the future, the Fed could get Congress to drop its dual mandate of maximum employment and price stability and focus solely on price stability. That would align with many other G10 central banks.

Overall, Warsh doesn’t like a “big Fed”, where everyone constantly telegraphs what the Fed wants to do, or the market focuses on “how would the Fed react to this data” rather than “what does this data mean to inflation” directly.

The difference of the latter is second-guessing and indirectness. Second-guessing leads to less efficient outcomes and reduces the Fed’s flexibility because the Fed feels the need to telegraph its thoughts all the time.

The Fed may not even hold a Press Conference at every meeting, but only when it has “something important to say”.

Across the FOMC statements and the Press Conference remarks, it is clear that the Fed has once again stepped up its focus on Inflation, at the expense of labour market. As the peace deal shapes up, geopolitical concerns have declined as well (but remain in focus).

Fed Projections

PCE inflation for 2026 was revised sharply higher to 3.6% from 2.7% in March — a 90 bp increase, the largest single-meeting upward revision in years, reflecting tariff pass-through or persistent price pressures.

Core PCE for 2026 was revised up to 3.3% from 2.7% in March (+60 bps), with 2027 core also marked up to 2.5% from 2.2%, signalling stickier underlying inflation.

Median fed funds rate for 2026 raised to 3.8% from 3.4% in March (+40 bps); 2027 raised to 3.6% from 3.1% (+50 bps), implying significantly fewer cuts over the projection horizon.

GDP growth for 2026 was revised down to 2.2% from 2.4% in March, while unemployment ticked down to 4.3% from 4.4% — a modest stagflationary tilt with weaker growth but higher inflation.

The June 2026 dot plot includes 18 participants, but Kevin Warsh did not submit a dot.

The largest cluster of votes is at 3.63% (8 votes), unchanged from today’s base rate. However, 9 votes (half of the votes) prefer at least one hike, with 6 people suggesting 2 or more hikes.

This is a significant divergence from the pre-US-Iran war period, and the market reads it as being more hawkish than before.

Moreover, as we see from the vote breakdown, there was no dissent from keeping rates at the current level with a hawkish bias. Previously, people dissented either by believing there should be a rate cut (Stephen Miran) or by arguing that the statement was insufficient to address rate-hike expectations.

So right out of the gate for Warsh’s first FOMC, the Fed members were aligned about holding rates higher for longer or potentially raising rates.

Market Reaction

Equities dropped immediately after the FOMC, with the Fed Funds futures pricing in at least one hike by the year-end. However, equities shrugged off the hawkish headwind the next day, staging a rebound on Thursday to close the short week.