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SNAP ANALYSIS: FOMC statement leans hawkish

The FOMC's latest statement reflects a hawkish shift, notably with dissent against any easing bias and a rephrased stance on inflation indicating concern over persistent price pressures.

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SNAP ANALYSIS: FOMC statement leans hawkish

FOMC STATEMENT: Rates unchanged at 3.50-3.75%, as expected; voted 8-4 to hold rates (Miran voted for a 25bps rate reduction; Hammack, Kashkari, Logan dissented on easing bias in statement)

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  • FOMC STATEMENT: FOMC STATEMENT: The updated statement and vote split was hawkish. The most striking development in the statement was the dissent; as anticipated, Governor Miran again voted for a 25bps rate cut; however, three additional dissenters (Hammack, Kashkari, and Logan) voted against the inclusion of any easing bias in the statement, which some analysts think could be a message to incoming Chair Kevin Warsh. Another key shift in the policy language was on inflation, with the line that inflation "remains somewhat elevated" being replaced with "elevated", with the Fed explicitly attributing this to the recent surge in global energy prices, a hawkish tilt suggesting the Committee views the oil shock as more than purely transitory. On the Middle East, the statement drops the prior "uncertain implications" framing, instead stating directly that developments there are "contributing to a high level of uncertainty". Meanwhile, growth and labour market language was largely unchanged; activity continues to expand "at a solid pace" and unemployment remains "little changed."
  • POWELL PRESSER (19:30BST/14:30EDT): Chair Powell’s press conference is likely to be dominated by questions about his future and the transition to Kevin Warsh. Traders will watch whether Powell signals he plans to remain a Fed Governor until 2028, which could influence the balance of power on the Board beyond his chairmanship. While it would be unusual for him to stay, doing so would deny the Trump administration a chance to appoint a new Board member. Analysts say Powell may remain if he believes it is necessary to protect Fed independence. Earlier, a Senate Committee advanced Warsh’s Fed Chair nomination to a full Senate vote after the DoJ dropped its Powell investigation. Any comments on Warsh’s expected succession will be looked to for signs of policy continuity, given his perceived hawkish stance and the potential impact on rate-cut expectations. On policy, traders will be interested to learn the nature of the dissent on the easing bias language. Looking at how Powell frames the threshold for cuts later this year (the March FOMC projections signalled one rate reduction in 2026), whether higher energy prices keep policy unchanged for longer, and whether inflation expectations remain anchored amid rising fuel costs.
  • Click here to watch Powell's press conference live at 19:30BST/14:30EDT 
Context

This suggests the Fed is likely viewing inflation as more than just a passing phase, prompting traders to reassess rate cut expectations, especially in light of rising energy prices. As Chair Powell approaches a critical press conference, focus will also be on governance transitions and signals regarding policy continuity under potential new leadership.

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