Presiding over his first Fed meeting, Kevin Warsh and the FOMC held rates at 3.50%-3.75%. Such was the fourth consecutive hold following a series of rate cuts. The decision for Warsh to hold rates steady was in little doubt. The Fed’s economic projections, aka the dot plot, and Warsh’s debut press conference were what every investor was paying close attention to, given the improvement in the labor market, 4+% inflation, and the bond market’s increasing odds of a rate hike by year’s end.As shown below, there was a dramatic change to the Fed statement. It’s the shortest since the Alan Greenspan era and contains no forward guidance. Also of note, there were no dissenting votes, which suggests the Fed’s posture is more hawkish. The statement “The Committee will deliver price stability,” together with the higher inflation forecasts we discuss below, is definitely hawkish. That said, they also state, “its policy of maintaining ample reserves in the banking system.” This line may lead some to believe the Fed could do QE even if it hikes rates.Further evidence of a hawkish shift was the rather large changes to the dot plot forecasts. The 2026 median Fed Funds rate projection for year-end moved from 3.4% to 3.8%, with next year’s rate higher by half a percentage point as well. 9 of the 19 participants think the Fed will hike rates this year. The higher forecasted Fed Funds rates were the result of higher inflation forecasts. Core PCE was revised higher by 0.6% for 2026 and by 0.3% for 2027. Bottom line: the projections and the Fed’s pledge to deliver price stability are leading markets to assume that Warsh and the Fed will hike rates. Please note that Warsh did not add his projections to the dot plot.At his press conference, Warsh had three primary messages:Inflation: “2% inflation is the Fed’s long-held objective … I see no reason until we have delivered the 2% goal, to revisit that goal.”No forward guidance. “We agreed [it] was not well suited for the current policy juncture.” The Dot Plots will continue, but Warsh won’t participate.Warsh is launching 5 task forces to “propose next steps” for policymaker consideration, including on Fed communications.What To Watch TodayEarningsEconomyInvestor Allocations Offer Caution, But For When?Jim Colquitt shared the stunning graph below in his latest Substack article. Before commenting on the graph, we share Jim’s comments.The current reading of the Average Investor Allocation to Equities is 55.1%. This is the highest reading in the history of our dataset, which goes back to 1945.This suggests that the market has never been more overvalued than it is right now*.*Note: the data compiled is as of December 31, 2025.”Fast forward to the recent quarter, and the updated Average Investor Allocation to Equities is 52.9%.Our take: Jim’s graph, like many valuation graphs, portends market weakness over the next ten years. However, they also show a recent disconnect, as we have in Jim’s graph. Which leads to the question of whether this time is different. Not likely, but it could be. We think the bigger message is that investors should understand that valuations are extreme. Importantly, that doesn’t mean the long-running bullish trend is ending immediately. Further, the graph below and others don’t talk to the timing of 10-year returns. If the graph proves prescient, might the market rally for five more years before a massive correction, or might the correction start tomorrow, with an 8-year bullish trend following?Tweet of the DayOriginal Post