With the 25bp hike itself fully priced, the market’s reaction Wednesday centred on the 10 year Treasury yield’s push back above 5%, a level Art Hogan of B. Riley Wealth flagged as the more important signal than the rate decision. A hawkish dot plot alongside Warsh’s tougher press conference tone reinforces the case for yields staying elevated near term, which typically weighs hardest on rate sensitive equities and keeps the dollar underpinned. With the Fed’s own median guidance now aligned with the more hawkish end of Wall Street’s forecasts, markets are likely to keep pricing a real chance of a second hike in December rather than treating Wednesday as an isolated, defensive move.
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The Fed’s hike was fully priced, but Warsh’s tone and a hawkish dot plot were the real surprise, and they sided with the hawks over Goldman.
Summary:
- The Fed raised rates 25bps to 3.75% to 4.00% Wednesday on a unanimous 12-0 vote, the first hike since July 2023
- Chair Kevin Warsh’s press conference tone was read as more hawkish than the statement, saying summer inflation readings do not show meaningfully improved underlying trends
- B. Riley Wealth’s Art Hogan flagged the 10 year Treasury yield’s move back above 5% as the market’s bigger focus than the hike itself
- The median dot plot points to one more 2026 hike, aligning with JPMorgan, Morgan Stanley and Deutsche Bank’s prior forecasts over Goldman economics’ one and done call
- Goldman Sachs Asset Management’s Kay Haigh said after the decision that the Fed will likely skip October given the midterms, and is now pencilling in one more hike in December, a more hawkish stance than Goldman’s own economics desk
- JPMorgan Asset Management’s Jordan Jackson flagged the unanimous vote and new “timelier return to 2%” statement language as signs of the committee’s patience wearing thin
The Federal Reserve’s 25 basis point rate hike on Wednesday, taking the fed funds range to 3.75% to 4.00% in the first increase since July 2023, was delivered exactly as markets expected. What moved markets afterward was everything around the decision rather than the decision itself.
Chair Kevin Warsh’s press conference tone came across as more hawkish than the accompanying statement. This summer’s inflation readings do not tell me that underlying trends have meaningfully improved, he said, a comment that landed as tougher than the widely expected quarter point move alone would suggest. According to B. Riley Wealth’s Art Hogan, the more important market signal was not the hike itself but the 10 year Treasury yield pushing back above 5%, a level he flagged as the real focus for traders in the aftermath.
The Fed’s own updated projections gave the hawkish camp on Wall Street the stronger claim. The median dot plot pointed to one more rate increase in 2026, which lines up closely with what JPMorgan, Morgan Stanley and Deutsche Bank had already been forecasting heading into the meeting, a second hike in December on top of Wednesday’s move. That leaves Goldman Sachs economics, which had been framing this as a one and done decision with no further hikes baked into its base case, on the more dovish side of what the Fed itself just signalled. Goldman’s economists have not published anything since the decision revising that call.
Notably, a divergence has opened up inside Goldman Sachs itself. Kay Haigh, global head and chief investment officer of fixed income and liquidity solutions at Goldman Sachs Asset Management, said after the decision that most FOMC members see a total of two hikes this year according to the Summary of Economic Projections, and that the Fed will likely skip its October meeting given its proximity to the midterm elections. She is now pencilling in one more hike this year, in December, a view that sits closer to JPMorgan and Morgan Stanley’s forecasts than to the one and done framing from Goldman’s own economics desk.
Elsewhere on Wall Street, JPMorgan Asset Management global market strategist Jordan Jackson flagged the unanimous 12 to 0 vote as notable in itself, alongside new language in the statement pointing to a timelier return to the 2% inflation target, which he read as a sign the committee’s patience with above target inflation is wearing thin. Taken together, the reaction across desks suggests the debate on Wall Street has shifted from whether the Fed would hike, which was never seriously in doubt, to whether Wednesday marks the start of a renewed tightening cycle or a single defensive move, a question the dot plot has now tilted toward the former.
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Wait is on for October:
This article was written by Eamonn Sheridan at investinglive.com.