Wash's debut lands: The dot plot remains, but the Fed may have already changed

Original | Odaily (@OdailyChina)

Author | Azuma (@azuma_eth)

In the early hours of June 18, Beijing time, the Federal Reserve officially announced its latest interest rate decision. As expected, the federal funds rate remained unchanged within the established range, aligning with market expectations.

Over the past few weeks, there was little debate in market pricing regarding the rate path, and the market had already fully priced this in. Therefore, the true focus of this rate decision was not on "whether to cut rates," but on how new Fed Chair Kevin Warsh would conduct his first policy communication — this was Warsh's first FOMC meeting as Chair, and the market's first opportunity to observe how he will shape the monetary policy communication framework for the years ahead.

The Dot Plot Remains, but Warsh Absent

The most discussed change from this meeting revolved around the economic projections and the structure of the dot plot itself.

• Odaily Note: The so-called "Dot Plot" is the Federal Reserve's quarterly published interest rate projection tool, where each dot represents an FOMC member's expectation for the future federal funds rate. Although these projections are not formal policy commitments, because they reflect the overall judgment of the policymaking body on the economic and inflation outlook, the dot plot has long been considered a crucial reference for the market to interpret the direction of Fed policy.

In the latest FOMC economic projections, only 18 of the 19 Fed officials submitted dot plot projections. Among them, one member saw a cumulative 75 basis point hike for the remaining time in 2026, five saw a cumulative 50 basis point hike, three saw a cumulative 25 basis point hike, eight saw rates remaining unchanged, one saw a cumulative 25 basis point cut, and one was absent.

Warsh later acknowledged during the press conference that it was he who did not submit a rate projection. Warsh explained, "I did not offer any projections of my own. This is consistent with my long-held view on the structure of this exercise, at least as it currently stands."

In contrast to his predecessor Jerome Powell's highly transparent and frequent communication style, Warsh has long been a representative of the "less is more" school. He has repeatedly expressed skepticism about "the effectiveness of the dot plot," "excessive forward guidance," and "frequently releasing policy signals." In Warsh's view, the Fed does not need to tell the market every step of its future path, but should make decisions based on real-time economic data.

Although the market once speculated that Warsh might push to reform or even abolish the dot plot mechanism, the dot plot was not directly eliminated in this meeting. However, Warsh's own absence still sent a clear signal — the Fed is downplaying the guiding significance of the dot plot.

The Subtle Shift in the Fed's Communication Framework

During the press conference, Warsh also stated that the Fed would implement a series of reforms in the future, including establishing multiple specialized task forces to explore more open data collection methods and study improvements to the existing statistical indicator system.

In the subsequent Q&A session, when repeatedly pressed by reporters on whether rates would rise next or if current rates were restrictive, Warsh declined to provide clear guidance.

For over a decade, one of the core capabilities of the Federal Reserve has been to continuously lower market uncertainty through the dot plot, the Summary of Economic Projections (SEP), and press conferences. The market's intense focus on the Fed's every move stems essentially from its provision of a "predictable path."

But Warsh's stance is changing this logic. Clearly, Warsh emphasizes data dependence, making decisions meeting by meeting, and maintains a more restrained expression regarding the future path.

If this tendency continues, the market will face a structural change — the Fed will stop trying to "explain the future" and only describe its "current judgment." This will directly weaken the certainty function of forward guidance.

Rate Hike Expectations Rise, Risk Appetite Declines

Following the rate decision, the market quickly began repricing the policy path.

After Warsh emphasized that "the central bank will not tolerate high inflation," the market started to reassess the upper bound of the Fed's policy reaction function — specifically, whether more aggressive tightening than previously anticipated is possible if inflation does not significantly decline.

This change was first reflected in short-duration assets.

Traders began to re-price a higher terminal rate. Pricing in some interest rate futures contracts suggests the market is already discussing scenarios of another rate hike as early as October, without ruling out tail risks from a more aggressive path. Probability data from Polymarket also moved higher, indicating that market pricing for a "reopening of the rate hike window" is underway.

U.S. stocks notably declined after the decision. The three major indices all fell, with the S&P 500 (-1.2%) and the Nasdaq (-1.3%) dropping over 1%. Tech stocks led the decline, marking a clear cooling of market risk appetite.

Structurally, this adjustment is not a simple "rate hike shock" driven by a single factor, but rather a more typical triple repricing:

• Short-term rates rise: The path for rate hikes is reopened.
• Risk assets fall: Valuation sensitivity to rates increases.
• Stronger dollar + yield curve volatility: Reflects rising policy uncertainty.

Importantly, the market is not simply trading on "economic weakness" or the "disappearance of rate cut expectations," but rather a more complex logic — under Warsh's new communication framework, the inflation constraint has been elevated, making the "upside tail risk" of the policy path more real.

In other words, if inflation does not fall quickly, will the Fed pivot back to tightening earlier and faster than the market previously expected?

Warsh's Shift May Just Be Beginning

In summary, if one only looks at the outcome of this meeting, the Fed did not make a drastic shift. Rates remained unchanged, the dot plot is still there, and the system continues to function. But if the focus shifts from the "policy path" to the "communication style," the change has already begun.

Warsh's debut felt more like a signal test. He didn't abolish old tools, but he didn't fully rely on them either. He chose to "weaken their effect and reduce their weight."

Looking at the longer-term implications, the biggest question left by this debut is not "will the Fed raise rates next," but "when the Fed stops giving the market the plot, how will the market re-price the world?"