Markets now price 40 bps of Fed tightening by year-end after the central bank’s hawkish dot plot signaled potential rate increases.
The US dollar climbed to its highest level since May 2025 after the Federal Reserve’s updated dot plot revealed a more hawkish stance. The median projection now includes one rate hike this year, with some policymakers forecasting two, defying expectations for no change in rates.
Prior to the release, consensus had anticipated no cuts or hikes in 2025. The shift in the dot plot triggered a repricing of rate hike odds, with markets now pricing 40 bps of tightening by year-end. Probabilities for a July hike rose to 36%, while a September move is seen as 72% likely.
Fed Chair Warsh emphasized data dependency, stating financial markets are the primary guide for policy decisions. The dollar’s rally reflected the surprise hawkish tilt, as investors adjusted positions ahead of incoming economic data.