YCC CAPITAL Global Fixed Income & Currency Strategy Date: June 20, 2026 Executive Summary A new chapter has begun at the Federal Reserve. At its June 17, 2026 FOMC meeting, the Federal Reserve left the federal funds rate unchanged at 3.50%–3.75%, in line with market expectations. Yet beneath the unchanged rate decision lay one of the most consequential institutional shifts in years: Kevin Warsh’s first meeting as Federal Reserve Chair. The meeting delivered two major messages. First, the Fed’s policy stance became materially more hawkish. Inflation projections were revised sharply higher, policymakers projected a higher future rate path, and the updated dot plot suggested that roughly half of participating officials expect at least one rate increase before year-end. Second, and arguably more important, Warsh initiated a fundamental redesign of how the Federal Reserve communicates, evaluates data, and conducts monetary policy. Forward guidance was substantially reduced, official statements were shortened, and five major policy review groups were established to reassess communications, balance-sheet operations, inflation frameworks, productivity trends, artificial intelligence, and economic data analysis. For investors, this shift may prove more important than any single rate decision. For nearly two decades, markets became accustomed to a Federal Reserve that provided extensive guidance regarding future policy intentions. Under Warsh, the institution appears poised to speak less, reveal less, and maintain greater strategic flexibility. Investors may increasingly need to rely on independent analysis of economic conditions rather than waiting for policy signals from central bankers. At YCC Capital, our baseline expectation remains that the Federal Reserve stays on hold throughout the second half of 2026. However, the probability of future tightening has increased materially, and communication uncertainty itself may become a new source of market volatility. YCC Perspective Financial markets often resemble a long road trip. For years, investors traveled with a GPS constantly announcing every upcoming turn. Under Powell, the Federal Reserve frequently told markets where it expected to go next. Warsh appears intent on turning off much of that navigation system. The destination—price stability and sustainable growth—remains unchanged. The journey, however, may become significantly less predictable. That distinction matters enormously for asset pricing. The June FOMC Meeting: No Rate Change, But a More Hawkish Fed The Federal Open Market Committee unanimously voted to keep the federal funds target range unchanged at 3.50%–3.75%. This marked the fourth consecutive meeting without a policy adjustment following the 25-basis-point rate cut delivered in December 2025. While the decision itself was widely anticipated, the broader message represented a meaningful shift. Prior to the meeting, markets had largely abandoned expectations for near-term rate cuts. Instead, investors increasingly began considering the possibility that the next move could ultimately be higher rather than lower rates. According to market pricing before the meeting, investors were already assigning growing probabilities to renewed tightening by late 2026 or early 2027. Warsh’s inaugural statement reinforced that perception. Compared with previous communications, the statement was noticeably shorter and less detailed. References to balancing risks, evaluating future data developments, and potential policy adjustments were largely removed. The document shifted away from elaborate narrative explanations toward concise factual descriptions. Several changes stood out: Labor market conditions were characterized more positively. Productivity growth and capital investment were highlighted as strengths. Inflation was described as being driven not only by energy prices but also by broader supply disruptions. The language emphasizing support for maximum employment was deemphasized relative to the commitment to price stability. The message was subtle but unmistakable: inflation has moved back to the center of the Fed’s policy framework. Economic Forecasts: Inflation Becomes the Dominant Concern The June Summary of Economic Projections revealed a substantially more inflation-focused outlook. Inflation Forecasts Revised Sharply Higher The median 2026 PCE inflation forecast rose from 2.7% to 3.6%. Core PCE inflation projections increased from 2.7% to 3.3%. Inflation forecasts for 2027 were also revised higher. These revisions reflect concerns that energy-related shocks and broader supply disruptions may have more persistent effects on price levels than previously anticipated. Labor Market Outlook Improves The median unemployment rate forecast for 2026 was lowered modestly from 4.4% to 4.3%. This adjustment aligns with recent labor market data showing stable unemployment and stronger-than-expected job creation. Growth Forecasts Slightly Reduced Real GDP growth projections for 2026 were lowered from 2.4% to 2.2%, suggesting policymakers see somewhat slower economic momentum ahead. Higher Policy Rate Path The median year-end federal funds rate projection increased from 3.4% to 3.8% for 2026 and from 3.1% to 3.6% for 2027. The implication is clear: policymakers now see greater scope for future tightening than they did only three months ago. The Dot Plot Sends a Hawkish Signal Perhaps the most striking development came from the updated dot plot. Among officials submitting interest-rate projections, half now expect at least one rate increase during 2026. Five officials anticipate two hikes, while one projects three increases. Only a single participant continues to foresee rate cuts this year. This marks a dramatic shift from the March projections, when no official expected rate hikes and several still anticipated rate reductions. Importantly, Warsh disclosed that he did not submit a personal dot plot projection. The symbolism matters. Rather than immediately influencing forecasts through his own submission, Warsh appears focused on reshaping the institution itself. Understanding the Warsh Doctrine Inflation First Throughout his press conference, Warsh repeatedly emphasized the Federal Reserve’s commitment to restoring price stability. He acknowledged that inflation has remained above the 2% target for approximately five years and stressed that maintaining credibility requires ultimately returning inflation to target. This signals a leadership philosophy that places greater weight on inflation control than many investors had expected. Rejecting the Traditional Inflation-Employment Tradeoff One of Warsh’s most notable comments involved his rejection of the conventional view that policymakers must choose between lower inflation and stronger employment. He argued that sound policy should allow robust growth, stable prices, and strong labor markets to coexist. Whether such an outcome proves achievable remains uncertain, but the statement suggests that Warsh may be less willing than previous chairs to tolerate elevated inflation