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Hey all! A short newsletter today as I’ll be sending another one later this afternoon with the recording and notes from Stablecoins Around the World: Brazil, with Aaron Stanley. I’ve decided to make them standalone sends so they’re easier to reference, and because the style is different.
So, we have confirmation:
The Fed is independent and, against the President’s wishes, it raised official interest rates yesterday by 25bp.
Its officials expect at least one more hike before year end.
And, Chair Kevin Warsh gives
▶incredibly boring press conferences.
The 25bp hike was largely expected, which is why the initial reactions were relatively muted.
But what was unknown was whether the message would a “one and done” deal or whether more hikes are coming – that was, to some extent, cleared up. There are more coming.
The “dot plot”, which reflects anonymized rate expectations of Fed officials, shows that most think there are further hikes coming: all but two of those providing a dot (Warsh abstained) predict there will be another before year-end. Four think there will be two.
(chart via Bloomberg)
Eight think there will be two hikes between now and the end of 2027 – just three months ago, only one participant thought this.
(chart via the Financial Times)
These are just projections and can change, but the takeaway is that yesterday was the start of a hiking cycle.
What’s more, it’s a hiking cycle that won’t be unwound swiftly, barring an economic disaster. The median expectation for the fed funds rate at the end of 2027 is 4.1%, the same as at the end of 2026 and a good deal higher than the 3.6% forecast at the June meeting.
(table via the Federal Reserve)
Especially notable is that the decision this time was unanimous. At the previous FOMC meeting, only three of the 12 voters wanted to see a hike.
Why the change of heart? As Warsh himself keeps reiterating, inflation is not coming down to target. The below chart by Bianco Research shows that the core PCE rate, ex-energy and food, has been above 2% for 65 months, easily the longest stretch since the 1990s.
