FOMC eve: what’s priced and what isn’t.

DXY 101.37 · EUR/USD 1.1383 · USD/JPY 161.74 · US10Y 4.37% · Brent $72.91 · XAU $4083

The day before Warsh's first FOMC is doing what a typical pre-meeting Monday does: very little. DXY closed at 101.37, the fourth consecutive sub-100 close. The 10-year yield drifted to 4.37 percent, in line with Friday's close. The notable cross-asset move of the session was outside the rates and FX world: Brent extended its Friday slide, dropping to $72.91 on more constructive Iran de-escalation signalling. That is doing real work on the inflation outlook the FOMC will discuss tomorrow: the energy-driven channel that made CPI headline read at 4.2 percent last Wednesday looks structurally less durable than it did 96 hours ago.

What's actually priced into tomorrow's decision

The OIS curve through the next four meetings prices the following probabilities:

• Tomorrow (16-17 June): 86 percent hold, 14 percent hike, essentially zero probability of a cut.
• July meeting: 65 percent hold, 30 percent hike, 5 percent cut. The probability distribution starts to widen meaningfully here.
• September meeting: 50 percent hold, 30 percent hike, 20 percent cut. By September the distribution is bimodal in earnest.
• December meeting: 35 percent hold, 35 percent hike, 30 percent cut. Markets effectively cannot tell what direction the next move is.

For tomorrow specifically, the decision itself is largely a formality. The hold is priced. The catalyst is the SEP, the press conference, and what Warsh chooses to say about r-star and the trimmed-mean PCE framing he has publicly favoured.

What's actually priced into the SEP

Consensus expects the median 2026 dot to move from the March SEP's 3.625 percent down (two cuts implied) to 4.00 percent (zero cuts, slight tightening bias). The longer-run dot consensus is 3.00 to 3.125 percent, up from March's 2.875 percent. The cleanest reading of those expectations:

• Year-end 2026 dot at 4.00. Stripping out the implied two cuts the March SEP carried. This alone is the largest single-meeting revision to the SEP since the September 2022 meeting.
• Longer-run dot at 3.125. A 25 basis-point drift higher, consistent with the Lubik-Matthes r-star direction we cover in today's reference piece. Materially higher (3.25 or above) would be the cleanest signal that Warsh is moving the Committee toward an LM-style neutral rate.
• 2027 dot at 3.50. Implying 50 basis points of cuts over 2027. A 2027 dot at 3.625 would mean the Committee is now flat-lining policy for the year and a half horizon, which is a notably restrictive read.

What is genuinely not priced

Three things would be genuinely surprising to the cross-asset board if they showed up in the SEP or the press conference.

1. A 2026 median dot at 4.125 or above. That would mean a hike is on the table at one of the three remaining meetings. The market is priced for hold; a hawkish signal of this magnitude would push DXY through 100 cleanly, EUR/USD to 1.14, and the 10-year above 4.65.
2. A longer-run dot at 3.25 or above. An LM- style structural move. The cross-asset implications are durable rather than short-term: terminal-rate expectations across the curve shift up roughly 30 basis points, and DXY sits structurally higher.
3. Trimmed-mean PCE framing in the press conference. Warsh explicitly leans on trimmed-mean PCE in his comments, citing today's softening in core CPI as the kind of underlying signal he wants the Committee to weight. This would be the cleanest dovish framing available without committing to a path.

The Brent collapse is doing real work

The single most underappreciated piece of the FOMC setup is what Brent has done over the past three sessions. Friday it dropped from $93 to $86 on Iran de-escalation chatter. Today it has extended to $72.91. That is a $10 round-trip in roughly 72 hours on no scheduled supply event. The geopolitical premium that drove last week's energy-led CPI is bleeding out.

The Committee will see this in two ways. First, mechanically, the energy contribution to the next CPI print will be materially smaller. Second, the Michigan consumer 5-year expectations spike may itself revert, because consumer inflation expectations track gasoline prices with a one-month lag. Both push Warsh in the direction of "look-through the headline" framing. That is the foundation of the dovish-SEP scenario we set out in Friday's end-of-week piece.

How to read the meeting itself

The press conference starts at 2:30pm ET tomorrow, immediately after the 2:00pm statement and SEP. The right reading sequence:

1. 2:00pm: statement and SEP. Read the statement first for language changes. Then the 2026 median dot, the longer-run dot, the dispersion in the central tendency.
2. 2:30pm: opening remarks. Warsh's framing-section. Watch for trimmed-mean PCE references and r-star language. Either one is a structural signal.
3. 2:45pm onwards: Q&A. Beat reporters will ask about the unmooring signal from Michigan, the Brent collapse, and the path. Read for hedging vs commitment language.
4. By 3:30pm. The full information set is out. The cross-asset reaction is largely complete; the durable trade is in the SEP-implied terminal rate, which can take a full day to fully price.

The yen note, still

USD/JPY at 161.74 held in its trading range Monday. MoF's step-four language from Thursday has not been repeated by another senior official. That is consistent with the read that MoF is waiting for the FOMC before committing. An operation immediately after a hawkish SEP would fight the rate differential; an operation immediately after a dovish SEP would compound the dollar pullback. The yen is the cross where the FOMC framing has the most immediate operational consequence.

What we are watching tomorrow morning

• Asian session price action. A break of USD/JPY 161 before NY open is the cleanest sign that the market is pre-positioning for a hawkish SEP.
• Pre-meeting Fed speakers. Highly unlikely the day of the meeting, but watch for any regional Fed president remarks.
• Brent and the Iran headlines. Another meaningful Brent leg lower compounds the look-through-the-headline framing Warsh can use.
• The 5y5y breakeven. The market-implied long-run anchor at the close tomorrow morning will be the cleanest single number to track into 2:00pm.