Morning Brief: FOMC Dot Plot Shifts Hawkish, Market Bets Rise Sharply on 2026 Rate Hikes, All Three US Benchmarks Fall Over 1%

Key Snapshot

🏛️ The FOMC held benchmark rates steady, yet the updated dot plot turned notably hawkish, with half of all policymakers forecasting at least one rate hike within this year. Warsh declined to submit his individual rate forecast in his first post-meeting press conference.

📉 All three major US stock indexes closed down more than 1%. The VIX volatility index rebounded above 18, and the Dow Jones Industrial Average lost 0.98% to settle at 51,492.

🛢️ WTI crude traded sideways around $76 per barrel. Inventories at America’s largest commercial crude storage facility fell to a 10-year low.

I. Market Outlook

Core Events

The FOMC left the federal funds rate unchanged for its fourth consecutive meeting. However, the quarterly SEP dot plot delivered a surprisingly hawkish signal: half the committee members expect a rate hike before the end of 2026.

At his debut briefing, Warsh reaffirmed the Fed’s 2% inflation target and announced five specialized working groups for policy review. Still, he opted out of submitting personal dot plot projections. Trump commented that holding rates flat was acceptable; while a rate hike seemed unlikely, he did not rule it out and voiced confidence in Warsh’s judgment.

Market Reaction

All three US equity benchmarks slid over 1%. The Dow closed 0.98% lower at 51,492.55. The 10-year Treasury yield climbed 4.7 bps to 4.487%, while the 2-year yield jumped 13.3 bps to 4.184%. Spot gold tumbled 1.64% to $4,258.59 per troy ounce.

Exclusive Insight

The signal that half of policymakers back a 2026 rate hike carries far greater weight than the decision to keep rates unchanged — the FOMC has fully shifted toward a tighter policy bias.

Warsh’s choice to skip dot plot submissions is a deliberate tactical move: it prevents markets from locking in fixed rate expectations, while leaving the Fed full flexibility to adjust policies based on new data.

II. Overnight Market Performance

Summary

The hawkish shift in the FOMC dot plot weighed heavily on risk assets: US stocks slumped, Treasury yields surged, and the US Dollar Index strengthened across the board.

— US Equities:

S&P 500: -1.21% to 7,420.10

Dow Jones Industrial Average: -0.98% to 51,492.55

Nasdaq Composite: -1.35% to 26,021.656

💡 Hawkish dot plot readings stoked widespread rate-hike fears, dragging all three indexes down over 1%. Strong retail data reinforced tightening expectations. Rate-sensitive technology stocks saw the steepest losses, leading the Nasdaq lower.

— European Equities: STOXX Europe 600 closed +0.52% at 639.31

💡 European markets traded against the US downtrend, supported by the signed US-Iran memorandum of understanding which eased regional energy cost risks. Investors await fresh policy signals from the Bank of England and ECB.

— Fixed Income:

US 10-year benchmark Treasury yield: +4.74 bps to 4.4869%

US 2-year Treasury yield: +13.28 bps to 4.1843%

💡 The hawkish dot plot pushed short-end yields up 13 bps, flattening the Treasury yield curve. Markets have fully priced in at least one rate hike before October.

— Commodities:

Spot gold: -1.64% to $4,258.59/troy oz

Spot silver: -2.97% to $67.9438/troy oz

WTI crude swung wildly intraday and closed flat, hovering near $76

💡 Gold dropped to $4,258, pressured by two factors: a stronger US dollar and upward revisions to real interest rate forecasts. Crude saw sharp volatility after the US-Iran memorandum signing, with decade-low US stockpiles limiting deeper losses.

— Foreign Exchange: US Dollar Index +0.55% to 100.091

💡 The dollar reclaimed the key 100 level, supported by dual catalysts: the hawkish FOMC outlook and stronger-than-expected retail sales.

— Crypto Assets:

Bitcoin: down more than 2% at $64,430.27

Ethereum: -2.7% at $1,747.37

💡 Bitcoin slipped to $64,400 as higher rate expectations suppressed risk appetite. Cryptocurrencies corrected in tandem with tech-heavy US equities.

III. Macro News

🏛️ FOMC dot plot shifts hawkish: half of policymakers expect a 2026 rate hike; Warsh skips dot plot submissions at his first briefing

The FOMC held rates steady for four straight meetings. Warsh restated commitment to the 2% inflation target and launched five dedicated working groups. Fed watchers described the new dot plot as “markedly hawkish”. Rate traders fully price a hike by October, with two hikes expected before Q1 2027.

Insight: Half the committee backing a 2026 hike marks a systemic shift to tighter policy. By withholding personal forecasts, Warsh avoids rigid market pricing and retains room for data-dependent adjustments. A rate hike before October is now the broad market baseline expectation.

🕊️ Senior US officials confirmed Trump signed a US-Iran memorandum of understanding ahead of schedule; Iran’s foreign ministry verified the signing.

Trump clarified this document is a non-binding preliminary agreement, and warned military strikes would resume immediately if Iran violates any clauses.

Insight: The signed memorandum marks a landmark diplomatic milestone, yet Trump’s punitive threat highlights fragile peace prospects. Crude hovers around $76 as markets balance two opposing forces: the potential return of Iranian oil to global supply chains and the risk of sudden deal collapse.

📊 US May retail sales rose 0.9% MoM, hitting a three-year high, driven by sharp increases in gasoline station spending.

Insight: The robust headline print is a nominal distortion caused by rising fuel prices; core retail activity is far softer than the headline suggests. Even so, the strong top-line reading gives the FOMC leverage to stick to hawkish communication.

🛢️ Inventories at America’s largest commercial crude storage complex fell to a 10-year low, hitting critical warning thresholds.

Insight: Historically low inventories act as a buffer against price spikes — any unforeseen supply disruption will trigger sharp upward moves in oil prices. Though the US-Iran deal initially triggered a crude selloff, depleted stockpiles prevent oil from staying depressed for long.

IV. Corporate News

💻 Microsoft is exploring alternatives to costly proprietary US AI models and plans to test DeepSeek to cut surging operating costs

—— Microsoft’s search for substitutes to OpenAI stems from a clear cost-control strategy. DeepSeek’s outstanding cost-performance ratio has drawn wide attention from US enterprises, creating a potential entry point for Chinese large language models into global markets.

🚀 Rental fees for Nvidia’s B200 GPUs are set to double, with new hardware orders backlogged until Q2 next year

—— Doubled leasing costs and multi-quarter order backlogs confirm sustained explosive demand for AI computing power. Nvidia retains dominant pricing power, and clients are willing to pay substantial premiums to lock in scarce GPU capacity ahead of competitors.

🍎 Apple hinted at price hikes across its hardware lineup. The second-generation iPhone Air is scheduled for release next spring, representing a major overhaul of Apple’s iPhone launch cycle.

—— Apple is readjusting both product pricing and release cadence. The new iPhone Air will be positioned as a thinner, premium differentiated product, while revised launch timelines reflect shifting global consumer demand patterns.

V. Key Focus Today

📋 US weekly initial jobless claims: gauge labor market resilience. Any stronger-than-consensus print will amplify market bets on FOMC rate hikes amid the hawkish dot plot backdrop.

📊 US April TIC cross-border capital flow data: track overseas investor demand for US Treasuries amid climbing benchmark yields.

🏛️ Bank of England monetary policy decision: assess whether the BoE will mirror the FOMC’s newly hawkish stance.