Reasoning
The Federal Reserve under Chair Warsh has signaled a more hawkish stance, evidenced by holding rates at 3.50 to 3.75 percent and erasing prior cutting bias at the June 17 meeting. The June SEP median for the year end 2026 funds rate has been revised up to 3.8 percent, with a significant portion of participants projecting rates above the current target range, suggesting continued upward pressure on wage growth to maintain real wage differentials. While a 5.0% wage growth tracker may be ambitious, the tightening policy environment and upward revision in rate expectations create a non negligible chance.Key uncertainty
The degree to which inflation moderates from current levels and whether that moderation is sufficient to shift the Fed's stance from hawkish to neutral or dovish.