Fed Holds with Hawkish Tone

• The first Fed meeting under Kevin Warsh kept the funds rate on hold at 3.5% to 3.75% in a unanimous decision; however, the accompanying statement struck a clearly hawkish tone, flagging concern over elevated inflation and a firm intent to deliver price stability.
• Nine of 18 committee members now see the need for a hike this year, prompting a sharp repricing of Fed expectations as bonds sold off, leaving a full hike priced by October.
• Domestically, with the RBA on hold at 4.35% on Tuesday, markets price a 32% chance of a move at the August meeting and 55% in November.
• Household spending rose 0.2% in May after a 1.2% fall in April, but the soft rebound suggests consumers continue to struggle as higher interest rates and inflation weigh on activity.