Yellen Debut Tilts Hawkish, Inflation Fight Returns as Policy Centerpiece, Nearly Half of Policymakers Shift to Rate Hike Outlook

BlockBeats News, June 18th. Early this morning, at its first FOMC meeting after Powell took office, the Federal Reserve stayed put as expected, keeping the federal funds rate target range at 3.50% to 3.75%. The decision was unanimously passed with a 12:0 vote. What truly surprised the market was the dot plot. Among the 18 officials who submitted forecasts, 9 projected at least one more rate hike this year, 8 expected no change, and 1 anticipated a rate cut. By the end of 2026, the median federal funds rate rose from 3.4% in March to 3.8%. Additionally, the Fed significantly raised its PCE inflation expectation for this year to 3.6% and core PCE to 3.3%, indicating a renewed focus on inflation resistance. Market pricing swiftly turned hawkish, with traders expecting a roughly 60% probability of a rate hike this year before the meeting, increasing to over 80% afterward.

Powell's core message at the press conference was equally cautious—less forward guidance, more reliance on real data. He explicitly stated that he did not submit a dot plot forecast and mentioned that traditional forward guidance may not be suitable in the current environment. Powell reiterated that the FOMC's commitment to achieving the 2% inflation target was "clear and consistent," indicating that this meeting only had one policy proposal on the table and no discussion of alternative approaches. He also announced the establishment of five working groups to examine Fed communication, the balance sheet, data sources, productivity and employment, and the inflation framework. This suggests that the Fed under Powell's leadership may be briefer and less committed but tougher on inflation.

The market's response leaned towards the typical "hawkish hold," with US stocks turning from gains to losses. The S&P 500 fell by 1.2%, the Nasdaq dropped 1.3%, and the Dow fell by around 507 points. The two-year Treasury yield rose rapidly, reflecting heating expectations of a rate hike this year. The US dollar strengthened across the board, pushing the DXY to multi-month highs, while gold remained under pressure due to rising real rates and the dollar. In the realm of risk assets, Bitcoin had already retreated to around $65,500 before the meeting, and post-meeting, overall cryptocurrency sentiment remained subdued, briefly falling below $64,000. If the Fed reopens the rate hike door, liquidity expectations will tighten, leading to a repricing of high-valuation tech stocks, crypto assets, and gold.