The Kevin Warsh Fed delivering a more hawkish than expected surprise.
The central bank unanimously held rates steady and newly minted Wars completely overhauled the reaction function, whittling down the policy statement and also declaring that the committee will deliver price stability.
The updated dot pot sent shock waves through the margins and also interest rate futures surge.
The two-year Treasury yield spiked to its highest level since.
2025 and the dollar steamrolled its global rivals.
Meanwhile, geopolitics that controlled the rest of the tape with Trump defending his interim peace deal with Iran.
Well joining me on this Thursday morning ahead of the holiday weekend is Brian Jacobsen, Chief Economic Strategist at Annex Wealth Management.
Brian, good morning.
Thank you so much for joining us.
So first and foremost, give us your take as well as reaction regarding Wars's first Fed meeting.
Yeah, thank you for having me.
Uh, honestly, I thought that the statement trimmed down, more succinct was actually kind of refreshing.
It felt as though they were trying to do their best over the years to kind of just make slight modifications to the statement.
And as a result, you got a lot of bloat, a lot of language in there that probably wasn't all that useful.
So, it was a little shocking.
To see that it was only 130 words instead of 341, but it was very succinct and to the point.
So, I did like that.
The biggest shock though, I think was in the summary of economic projections, is that 9 out of the 8 or 19 people in that room would have supported like a rate hike by the end of this year.
So, that was a Big shift from last time.
Cheer Borsch, he did omit his dot, so he doesn't want to give that forward guidance.
It was also a little perplexing if you counted up the dots that somebody forgot to include a dot for 2028 with that projection.
So I'm not sure exactly how seriously we should actually take those dots anymore.
Yes, it was quite refreshing to see a change, but at the same time we are looking towards the future, especially given the fact that we are looking at inflation still elevated right now.
But given the fact that the US and Iran have signed that MOU regarding the conflict in the Middle East, what are your expectations for inflation as well as economic growth?
And how do you see this affecting rates in the second half of the year?
Sure, I think we could see those rates come down.
I think we could actually see the Fed go back to, uh, instead of having 9 people supporting a hike, you could maybe have 9 people supporting a cut, uh, mostly because of inflation.
It's also the labor market.
Let's not forget about that with the dual mandate.
We've seen a strong labor market, but I think some signs of that bounce back from the February lows beginning to fade.
So, maybe the labor market, it's strong, but not overheating.
But then on the inflation side, you go from headline inflation being well above core to perhaps it being Well below core because of a dramatic reversal in oil prices, then gasoline prices, diesel prices, all of that.
So, by the time that they meet in July, they're likely not going to have enough evidence to, uh, say that, you know, they can, uh, no longer be vigilant about inflation, but by the September meeting, they could probably be talking about, oh, Inflation has now come back down.
Labor market, it's strong, but not quite as hot as what it was.
They could go back to a more neutral stance, maybe stay on hold, if not contemplate a cut.
So, I would actually be fading this big jump up that we saw in yields, uh, especially with the two-year Treasury, thinking that that's going to come back down sometime soon.
Well Brian, we are fast approaching the opening bell here on Wall Street, so we will have to leave it there for today.
But thank you so much for joining us and thank you so much for sharing all of your insights today.
Thank you.
