The June 17 FOMC decision, Kevin Warsh's first as Fed chair, came with a clear shift in direction. The committee held rates at 3.50-3.75% but dropped prior language about upcoming rate cuts and rewrote the dot plot. Nine of 18 officials now forecast at least one 2026 rate hike. The median dot moved from 3.4% to 3.8%. The S&P 500 fell 1.21% to 7,420.10. The 2-year Treasury yield surged 17 basis points to 4.216%.
What did the May retail sales report show before the FOMC decision?
May retail sales rose 0.9%, nearly double the 0.5% forecast and the fourth consecutive monthly increase. Total sales reached $763.7 billion. Core sales are up 7.5% year-over-year, the largest annual gain since January 2023. The data released at 8:30 AM ET on June 17, hours before the 2:00 PM ET FOMC announcement, gave Warsh's committee a clear basis for a hawkish shift in the dot plot.
Consumer spending has not responded to 3.5-3.75% rates the way the Fed needs it to. Four straight months of beats, no sign of a slowdown. That's probably why nine officials moved their dot.
What did Kevin Warsh's first FOMC dot plot show?
Nine of 18 Fed officials put at least one 2026 rate hike in their dot plot. Six of those back multiple hikes. The median rate projection moved from 3.4% to 3.8%, a 40 basis point upward shift in a single meeting. The Fed kept the benchmark rate at 3.50-3.75%, unchanged since December 2025. Warsh removed prior references to "additional rate adjustments" and replaced them with a purely data-dependent stance.
The committee is divided almost exactly in half on the hike question. A single strong inflation print could tip that balance. The June CPI, due mid-July, is the next major test.
How did markets react on June 17?
The S&P 500 fell 1.21% to 7,420.10 and the Nasdaq dropped 1.34% to 26,021.66. The Russell 2000 rose 0.76%, diverging because small-cap stocks carry less rate sensitivity than large-cap growth names. The 2-year Treasury yield jumped 17 basis points to 4.216% in a single session. Semiconductor stocks took the hardest hit: AMD fell 7.3% and Intel dropped 8.5%.
The AMD and Intel moves weren't about semiconductors specifically. They're high-multiple, rate-sensitive names. When the rate endpoint moves 40 basis points in a single meeting's projections, that reprices the entire duration stack. The Russell 2000 rising while Nasdaq fell is the clearest structural read of how the session played out.
What happened on June 16 heading into the FOMC decision?
Markets sold off before the announcement. The S&P 500 fell 0.57% to 7,511.35 on June 16, the day the Fed's two-day meeting opened. The Nasdaq fell 1.15%. SpaceX announced a $60 billion all-stock acquisition of Anysphere, the startup behind AI coding tool Cursor, marking the largest venture-backed startup acquisition on record. Alphabet's stock continued under pressure from its $80 billion equity raise announced June 1 and upsized to $84.75 billion.
The US-Iran memorandum formalizing a ceasefire and reopening the Strait of Hormuz was largely absorbed without a sustained rally. Oil fell on the news.
What should traders watch through the Juneteenth holiday gap?
June 19 is Juneteenth, a federal holiday. Markets are closed. The next session opens Monday evening, June 22. That three-day gap follows triple witching on June 18, when stock options, index futures, and index options expired simultaneously on a Thursday due to the Juneteenth holiday shift. Institutions need to decide whether to carry risk through that gap with a new dot plot that points toward hike, not cut.
The US-Iran deal is set to sign formally in Switzerland on June 19. Gold closed at $4,260 on June 17. A hawkish dot plot lifts real yield expectations, which pressures gold from one side. The Iran deal removing the geopolitical risk premium pressures it from a second direction. Both moved in the same week.
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