Dovish dot plot, market overreacted

#沃什首次FOMC维持利率

┈➤ It's clear the dot plot is leaning hawkish

2026 predictions:

1 person predicts a rate cut once
9 people predict no change
3 people predict a rate hike once
5 people predict a rate hike twice
1 person predicts a rate hike three times

Compared to the last dot plot, which leaned dovish with rate cut predictions, it's now shifted to hawkish with rate hike expectations.

┈➤ The market overreacted

In fact, according to the dot plot, Fed officials are predicting an average rate hike of 0.79% by 2026.

Previously, CME rate futures indicated that the market expected one rate hike between December and January 2027.

So, the dot plot essentially aligns with expectations, maybe just slightly worse than anticipated.

Currently, CME rate futures show that the expected rate for September is likely between 3.75% and 4.0%, while it's currently at 3.5% to 3.75%, indicating a significant probability of a rate hike in September.

The issue is, looking at market expectations for October to December, the anticipated rate remains 3.75% to 4.0%, meaning the market is essentially expecting one rate hike in 2026.

The greater likelihood for January 2027 is a rate between 4.0% and 3.75%, but that probability is only slightly higher.

So, we are still expecting one to two rate hikes between 2026 and January 2027, with the original expectations only increasing by one rate hike at most.

And the expectation of a rate hike in September is influenced because CME rate futures are also a trading product, leading traders to have emotional and speculative elements when buying this product.

From this, we can see that the market is digesting the hawkish sentiment of the dot plot and is in a somewhat irrational state.

┈➤ Final thoughts

With this sentiment in play, the Nasdaq 100 dropped 0.99%, and BTC hasn't broken below 64,000.

BTC may have already dipped ahead of June 5-6. Moving forward, the main focus will be whether Trump and Iran can sign their memorandum of understanding. Will Trump backtrack again and do something to spike oil prices? If there are no major bearish catalysts, BTC might not head downward.

BeeBrother believes BTC's three tests will occur in September,
that’s after Walsh's first quarter of adjustment and research with Fed officials, potentially leading to a policy direction from the Fed.

Relative to the previously dipped BTC, BeeBrother speculates that US stocks might continue to adjust, as previously charted, there’s a certain probability of US stocks dropping in the second month after a US president visits China. Of course, this aspect requires further multi-angle research.