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Following last week’s FOMC rate hold—another “hawkish pause” with three dissents—the press conference left investors wanting clearer insight into both forward guidance and the Fed’s decision-making framework, leading markets to push yields and inflation breakevens higher in search of more compensation for the added uncertainty.

What caught our eyes this week

Learning to Play the Ball

Last week’s FOMC meeting came against a backdrop of recent soft inflation and employment reports, and nonzero odds of a rate hike. We did not get the rate hike, but did get another “hawkish pause.” Since then, the market narrative has flipped on its head. Fears of hiking rates into a supply shock have given way to fears of a policy mistake from failing to rein in inflation. After the press conference, Treasury yields and breakeven inflation rates rose as the market showed some frustration over a lack of clear insight from the FOMC —not just into forward guidance, but also the decision-making framework that yielded a hold -steady despite three dissents. Warsh noted, “markets are learning to play the ball, not the referee,” and we agree it would be helpful to wean off a heavy dose of forward guidance. However, to continue the analogy, for the market to play the ball, it needs to know the rules of the game. Despite some near-term angst in bond markets, Fed funds futures still expect a handful of rate hikes ahead. Our take is bond markets aren’t necessarily doubting the credibility of the Fed. Rather, given the removal of information, they want a little more compensation for the uncertainty introduced.

CHART OF THE WEEK: Cerity Partners, Ycharts, 6/2/2026 – 7/31/2026

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