The Fed decides on Kevin Warsh’s first rate hike today, and the curve already has a 23bp move priced in, taking the effective rate to 3.86%.
I believe the Summary of Economic Projections (SEP) carries the more important number because it says how far this Fed thinks rates need to go into 2027 and 2028, beyond the first rate hike.
The SEP Dot Plots over the past year
If the new Dot Plot lands at or beyond what the market already prices in, that confirms the fear that a full hiking cycle is underway.
The Fed’s tone has become more hawkish in 2026
Our Fed tonality score reads every FOMC meeting from four things: statement language, vote split, the direction of the dot-plot shift, and the press conference.
On a scale from maximum dovish to maximum hawkish, the last three meetings of 2025 all scored dovish. However, every meeting since January has scored hawkish, while the last two meetings have pushed higher again.
The market expects two hikes before the year-end
The Fed Funds futures market prices 23bp for today, then 12bp for October, 17bp for December and 8bp for January, which puts a second hike inside the year-end window.
Through October 2027, the curve carries 93bp of tightening in 25bp steps.
US Treasury yields have bear-flattened in the past month
The Treasury market has already done the work on the front end. Over the past month the 2Y is up 48bp against 9bp on the 30Y, so the curve has bear-flattened on the repricing rather than on growth.
S&P 500 tends to first dip, then massively rally after the FOMC
For the equity question, the pattern is more useful than the level.
1 day after each of the last four FOMC meetings, the reaction was negative or flat.
20 days after, all four were positive, and the two largest moves are the biggest bars on the chart.
A selloff on the announcement is very much on the table, especially if the dots land more hawkish than expected, but buying the dip ahead of a 1-month rally has repeatedly been the better trade.
A “Dovish Hike” today?
There is also a version of today where Warsh delivers the hike and pushes back on the hawkish path in the same breath, saying he wants to see the trend before committing to a path.
That would a “dovish hike”.
It could take some hawkish premium out of the front end, and front-end yields coming down is what would help equity pricing over the next month.
The condition that changes the read is this:
If the dots move at or beyond what the curve prices, and Warsh does not push back on the path, the front end has further to go.
If Warsh delivers the hike and softens the path, the 2Y is the first place it shows.
Read more of my work
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DISCLAIMER: This newsletter is strictly educational. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.