DWS: Fed's hawkish stance today is tomorrow's dovish narrative

18 juni 2026

Christian Scherrmann, Chief U.S. Economist at DWS, analyses the meeting yesterday of the Federal Reserve.

With Kevin Warsh as the new Fed chair, the institution is entering a new era defined by a changing economic philosophy. It remains to be seen whether Warsh will adopt the classical economic approach of Alan Greenspan or develop a new style based on market efficiencies and advanced data analytics.

At least, the classical economic principle that only unanticipated policy changes have full effect seems to be regaining relevance under Warsh. Based on this, we can reasonably conclude that the Fed will become much more agile, and complacently listening to central bankers will no longer be effective.

Today's hawkish stance may become tomorrow's dovish narrative. As market participants, we aim to contribute to this shift. We reiterate our view that the Fed will keep rates on hold in 2026 — at least for now.

The statement of the Fed was much shorter and focuses solely on price stability. It provides no forward guidance and no longer discloses how members voted on the decision. However, the real hawkish surprise was in the dot plot. Nine out of 18 FOMC participants indicated that at least one rate hike would be appropriate in 2026, while eight opted for no change and one opted for a cut.

One dot was missing—that of the new Fed Chair, Kevin Warsh. Alongside this outlook for policy rates, central bankers projected slower growth, higher inflation, and a robust labor market in 2026. Furthermore, participants suggested that headline inflation would likely return to normal in 2027. However, the process would be more rigid for core inflation, which points to structural factors beyond tariffs and energy prices and is another hawkish element.

During the press conference, Warsh reaffirmed the dual mandate and emphasized that the abbreviated statement only includes the facts they can confirm, clearly hinting that inflation is their primary concern.

Regarding the SEPs and the dot plot, Warsh clarified that he did not submit any forecasts and suggested that changes to the format are highly likely. The first of five task forces will address this issue.

The task forces will include outside experts and examine potential changes in communication, the Fed’s balance sheet, data, productivity, jobs, and inflation. Warsh said that changing the inflation target lies outside the scope of the review.

Regarding potential rate hikes, he noted that forward guidance had been dropped and that monetary policy remains uneven across the economy, though it is still somewhat restrictive overall.

Regarding the forward guidance implied by the dot plot, he said he did not sense strong conviction among his colleagues, who have been open about making changes. He added that a rate cut was briefly discussed at the meeting but received limited support.

When asked about long-term inflation trends—another potential dovish angle—he again referred to the commitment to price stability and emphasized the need to prevent second- and third-order effects.

Regarding data, he seemed to favor real-time indicators and analytical methods over traditional, backward-looking data, though this remains under review. When asked about the market reaction, he declined to comment, stating that markets should react to the data itself and not to how the Fed will likely react to it because that is when markets function best.

Overall, Warsh frequently referenced the upcoming task forces when answering questions. This was another way he avoided providing forward guidance. His brief mention of a rate cut was overshadowed by the hawkish shift in the dot plot.

Ultimately, the message is that the FOMC is divided on whether to hold or raise rates at least once. However, based on the fact-based, no-forward-guidance Fed under Warsh, this could change quickly from meeting to meeting.

There is a clear indication that inflation currently takes precedence over employment, and many factors are at play. From past experience, we know that the new chair views inflation as a choice and recognizes the role of the money supply, i.e., the balance sheet. A task force will likely determine this exact role.