CLARITY Dies, Now Will The Fed Deliver The Second Blow?

With the 10-year Treasury yield at or above 5%, market watchers say investors are looking for stronger signals from Fed Chair Kevin Warsh on the central bank’s long-term inflation plan. One CNBC reporter said their strategy for Wednesday’s press conference will center on Warsh’s opening statement rather than the Q&A, since it will offer the clearest early signal of how much guidance he’s willing to give, particularly given a live debate over whether long-end yields need this hike to finally form a ceiling.

A CNBC Fed survey found 76% of respondents expect a rate hike at this month’s meeting, with 55% anticipating more than one hike this year and a third seeing more than two hikes through July 2027. That brings total hike expectations for the year to 86%, more than double last month’s reading. The survey’s average inflation outlook for 2026 rose to around 3.5%, up from 2.7% before the Iraq war.

CFA analyst Milton Berg argues the Fed should keep rates unchanged rather than hike in response to rising Treasury yields and higher crude oil prices, giving the economy time to absorb the moves. He said an oil-price shock doesn’t necessarily signal accelerating monetary inflation, since higher energy costs also reduce consumers’ real disposable income and corporate purchasing power, creating a disinflationary effect elsewhere in the economy.

Traders are pricing in a 90% probability the Fed delivers a rate hike today, with roughly 100 basis points of total increases expected over the next 12 months. The real focus isn’t the hike itself but whether it signals a hawkish start to a new hiking cycle or a one-off insurance move, a distinction that hinges on the Fed’s updated dot plot and whether the decision is unanimous.

If the Fed delivers a hike alongside a credible path toward further increases, long-end yields could hold steady or even fall on improved inflation-fighting credibility. If instead it’s framed as a one-off insurance hike, longer-term yields could rise instead, as investors grow concerned about longer-term inflation expectations going unaddressed.

Global bond markets are under pressure, with the US, France, and Germany all seeing yields hit their highest levels in nearly two decades. The US 10-year yield has crossed the closely watched 5% mark, while oil prices continue edging higher on ongoing Middle East tensions and major stock indices tick lower ahead of today’s Fed decision.

Tom Lee said a Fed rate hike, if it happens, would likely be met calmly by equity markets, agreeing the move looks more like the Fed ceding to market pressure than its preferred course. He cited a Goldman Sachs study showing four factors distorting PCE inflation by 1.7 percentage points, from portfolio fees to tariffs and energy, arguing PCE is set to fall regardless of Fed action within six months. Lee remained bullish overall, saying markets have priced in hike expectations for weeks, with substantial cash still on the sidelines after consecutive down days, a setup he said could fuel a sharp rally.

The Fed’s rate decision lands at 2:00 PM ET today, with markets forecasting a move to 4.00% from the previous 3.75%. The FOMC statement and dot-plot release simultaneously at 2:00 PM ET, followed by Fed Chair Kevin Warsh’s press conference at 2:30 PM ET.

Bitcoin slipped to $75,521.32, down 1.6% over 24 hours, as crypto markets pulled back ahead of today’s Fed rate decision. Ethereum fell 3.4% to $2,388.22, while XRP led the declines, dropping 10% to $1.27 and down 11.2% over the past week. BNB eased 1.2% to $710.00. The broader retreat comes as traders position defensively heading into the FOMC announcement.

Markets are pricing a 95% probability of a rate hike at today’s FOMC decision. Since 2000, across more than 90 FOMC meetings, market expectations have proven wrong just five times, making today’s near-certain pricing a strong indicator of the outcome.