Fed Expected to Raise Rates 25 Bps, Dot Plot in Focus

The Federal Reserve is anticipated to lift rates by 25 basis points at its meeting, taking the federal funds rate corridor to 3.75%-4.00%. That increase would mark the first since 2023, driven by inflation staying above target and disinflation moving slowly, forcing the committee back to a tighter policy.

Markets have already fully priced in the move, so the announcement itself probably won't cause much volatility. The focus instead is on the dot plot and Chair Warsh's remarks for signs of the pace of future tightening.

STATEMENT

The statement will be updated to account for the hike. Its opening sections should indicate a majority backing a rise to the 3-3/4 to 4 percent range. Only one or two dissenting votes are expected, likely favoring a pause, with Bowman the most dovish member. Aside from the inflation section possibly mentioning slow disinflation, other parts are likely to stay broadly the same.

A majority vote to hold rates steady would be the biggest surprise. That would be highly dovish, pushing inflation expectations up. Market effects would be clear: gold and precious metals would rise, while bonds and the dollar would decline sharply. Stocks might see a modest gain.

FOMC Statement - July 2026:

Potential surprises:

• A hold vote by the majority - strongly dovish

SUMMARY OF ECONOMIC PROJECTIONS AND DOT PLOT

The SEP is projected to trim the unemployment forecast slightly and raise near-term inflation projections. Growth outlooks are seen as unchanged.

Emphasis is on the dot plot. The median dot is expected to signal 75 bps of tightening through end-2027, comprising two increases this year (including today's) and one next year. That would undo the three 2025 cuts but remain less aggressive than the four hikes now priced.

Surprises hinge on the projected total tightening. A median dot indicating three or more additional hikes by end-2027 would be hawkish. That would likely boost the dollar and long bonds, while hurting stocks, precious metals, and crypto.

Two more hikes would match consensus and be seen as slightly dovish, leading to a weaker dollar and gains for precious metals, crypto, and equities.

A projection of only one or zero further hikes would be a dovish surprise. Precious metals and crypto would likely rally, with the dollar and bonds selling off sharply.

SEP June 2026:

Potential surprises:

• Two additional hikes this year and two next year - hawkish
• Two this year and none next year - slightly hawkish
• One more this year and none next year - dovish
• No further hikes - strongly dovish

PRESS CONFERENCE

Fed Chair Warsh is expected to avoid explicit forward guidance again. He is likely to echo his Jackson Hole remarks, stressing the sluggish disinflation and the Fed's commitment to the 2% target. Warsh's Jackson Hole speech can be accessed via this link.