Markets were left to their own devices for the first time in a generation after Warsh scuttled forward guidance as part of his Regime Change.

By Wolf Richter for WOLF STREET.

The FOMC kept its five policy rates unchanged in the range of 3.50% to 3.75% after “a good family fight,” as Warsh has called the process repeatedly since becoming Chair.

Some of the disagreements spilled out into the open with 3 dissenters – Beth Hammack, Neel Kashkari, and Lorie Logan – who preferred a rate hike. Let there be dissents; they’re a breath of fresh air.

With Warsh staying away from anything even remotely smelling of forward guidance, there was unusual uncertainty in the markets about the outcome of this FOMC meeting.

The CME FedWatch Tool, which tracks the Federal Funds Futures market, assigned a 33.7% chance of a rate hike and a 66.3% chance of a hold still hours before the release of the FOMC statement. That chance would have been close to 0% at prior meetings.

In the Treasury market – left to its own devices without forward guidance – the 2-month Treasury yield spiked last week, indicating that investors in that maturity started penciling in a rate hike at this meeting. These securities mature at around the time of the FOMC’s September meeting, and so that portion of the bond market doesn’t care about a September rate hike, but these buyers wanted to be paid for a rate hike they expected at this meeting.

Upon the release of the FOMC statement today, the 2-month Treasury yield instantly plunged by 8 basis points.

The FOMC statement was terse and devoid of forward guidance, at 166 words, not counting the contact info and links, compared to the 341 words of the last statement under Powell. A terse statement devoid of forward guidance was one of the first acts of Warsh’s “Regime Change” at the last meeting.

The statement was primarily worried about inflation, and less worried about the economy and labor market. That shift had started in March under Powell.

There was only one change beyond of the number of votes and listing the dissenters:

** New**: “

The Committee is continuing its policy of maintaining ample reserves in the banking system.”

Old: “The Committee reaffirmed its policy of maintaining ample reserves in the banking system.”

This was a no-dot-plot meeting. In past years, the FOMC released a “Summary of Economic Projections” (SEP) quarterly, after 4 of the 8 FOMC meetings a year. The SEP includes the “dot plot” that indicates how each FOMC member sees the development of future policy rates, inflation, GDP growth, and unemployment.

The June meeting had been a dot-plot meeting, but Warsh, having declared war on forward guidance, didn’t submit his projections to avoid giving forward guidance, and thereby began torpedoing the dot plot. And there may be no more dot plots in the future. But if the FOMC releases another SEP, it will be after the September meeting.

The whole statement:

The Federal Open Market Committee approved the following statement for release by a 9 – 3 vote:

The Committee decided to maintain the target range for the federal funds rate at 3-1/2 to 3-3/4 percent, in support of the Federal Reserve’s dual mandate. The Committee is continuing its policy of maintaining ample reserves in the banking system.

Economic activity is expanding at a solid pace despite elevated uncertainty that owes, in part, to the conflict in the Middle East. Productivity growth and capital investment are strong. Job gains have kept pace with the workforce, and the unemployment rate has changed little.

Inflation remains elevated relative to the Committee’s 2 percent goal, in part reflecting supply shocks that have driven price increases in certain sectors, including energy. The Committee will deliver price stability.

Voting against the monetary policy action were Beth M. Hammack, Neel Kashkari, and Lorie K. Logan, who preferred to raise the target range for the federal funds rate by 1/4 percentage point at this meeting.

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