|
The Dot Plot Was Written for a World That No Longer Exists. Warsh’s Press Conference Will Tell You If He Knows It.
At 9:30 a.m. Monday, the opening bell rang on a different market than the one that closed Friday. The Iran deal announced Sunday night had removed the single largest risk premium in global equities, bonds, and commodities simultaneously. The Nasdaq surged 3.07%. The Dow hit a new all-time high at 51,671. Japan’s Nikkei posted its best day since March 2020, up 5.5%. South Korea’s Kospi gained 5.7%. Brent crude fell 4.8% to $83.17, its lowest since early March. WTI dropped 4% to $81.46.
The S&P 500 closed at 7,554.29, within 0.7% of the June 2 record. Two weeks ago, it had fallen 4.5% on a 4.2% CPI print, CENTCOM strikes, and a 172,000-job report. The entire correction has now been erased. The market that opens this morning is not just back to where it was. It is trading a fundamentally different forward path.
At 2:00 p.m. ET today, the dot plot arrives. Each FOMC committee member submitted their rate projection before Sunday’s deal. Those dots were built on an economy with oil above $90, a closed Strait of Hormuz, 4.2% headline CPI, 172,000 jobs, and no path to energy relief. In that economy, the consensus expectation was a shift from easing bias to neutral, with one or two potential hikes by year-end. Goldman Sachs had pushed rate cuts to 2027. CME FedWatch priced a 70% chance of a hike by December.
The economy that exists this morning has WTI at $81, a strait that is reopening, and an energy premium that has already fallen 15% in five sessions. If oil holds below $82 through June, the headline CPI impulse that drove the 4.2% reading reverses. Energy accounted for more than 60% of May’s monthly increase. Core CPI was already below consensus at 0.2% month-over-month. The gap between headline and core was 130 basis points and closing from the headline side. A June CPI near 3.5% is now plausible. A July print below 3% is not impossible.
The dots cannot change. The press conference can. The projections are locked. If they show a median dot at 3.50–3.75% through year-end with one or two participants favoring a hike, the market will read that as hawkish. The initial reaction at 2:00 p.m. could be negative: yields rise, equities dip, and traders sell the stale projections. But 30 minutes later, Warsh takes the microphone. How he frames the next 30 minutes will matter more than the dots.
If Warsh says the words “geopolitical” and “supply-side” in the same sentence, the market will hear that the Fed views the inflation impulse as temporary. If he acknowledges that the strait reopening changes the energy trajectory, rate-hike expectations collapse. If he reverts to data-dependent language and refuses to speculate, the market trades the ambiguity and waits for July’s CPI.
The oil repricing is not finished. Monday’s move took Brent from $87 to $83. But the pre-war price was roughly $68–70. The MOU specifies full shipping capacity within 30 days. Physical oil flows through Hormuz will not normalize instantly. Insurance companies need to update war-risk premiums. Ship operators need to reroute from the Cape of Good Hope. The market is pricing the expectation of normalization, not normalization itself. If the deal holds through Friday’s signing and the 60-day nuclear window opens without incident, oil could drift toward $75 by mid-July. If it collapses, the snap back toward $95 would be violent.
What the correction taught. From June 2 to June 10, the S&P 500 fell 4.5%. The catalysts were real: the strongest jobs report in a year, the highest CPI since 2023, U.S. airstrikes on Iran, and a $1.3 trillion semiconductor meltdown. The recovery took five trading days. The investor who sold on June 5 and waited for “clarity” missed a 3.9% rally from the June 10 low to Monday’s close. The investor who held through the entire cycle is now 1.65% above where they were on Friday and 0.7% from a new all-time high.
At 2:30 p.m. today, Kevin Warsh will give his first press conference as Fed chair. He inherits a dual mandate, a divided committee, a president who has publicly demanded rate cuts, and an inflation picture that has shifted more in 14 days than in the prior 14 months. What he says about oil, about the deal, and about the gap between headline and core will set the tone for the entire summer.
The Dow is at a record. Oil is below $82. The dot plot drops at 2:00 p.m. and was written for a different economy. Warsh’s press conference at 2:30 will be the most important 30 minutes of the quarter. The dots tell you what the committee thought last week. The press conference tells you whether Warsh knows the strait is open.
|
