Yahoo Finance's Brian Cheung reports on key topics from the June FOMC meeting including inflation, interest rates, the Fed's dot plot projections, and tapering.

Video Transcript

JULIE HYMAN: We have to start with what happened at the Federal Reserve yesterday. The dots are moving. The language is changing. And Brian Cheung is here to make sense of all of it for us. Brian, bring it in for us. What do we hear?

BRIAN CHEUNG: Yeah, I think the meeting broadly yesterday could be described as a surprise. I mean, me personally, I did not expect to see as much meat in that meeting yesterday as we ended up seeing. And one big surprise was in the way that the Federal Reserve was talking about tapering, and, in fact, the fact that they were talking about tapering at all.

So nothing new changed in the statement. We have to remember that decision yesterday that dropped at 2:00 PM was that the Fed would be holding interest rates at near zero. They would be continuing its asset purchase pace around $120 billion a month.

So nothing in the statement really changed, but we got so much detail from that press conference with Jay Powell, notably the Fed chairman saying that they did begin having those discussions on when to taper. Although, he didn't offer any sort of additional detail, only committing to offering more transparency about how they're assessing substantial further progress in the coming months. But take a listen to what he said with regards to the talk about talk about tapering language from yesterday. Take a listen.

JAY POWELL: You can think of this meeting that we had as the talking about talking about meeting, if you like. And I now suggest that we retire that term, which has served its purpose well I think.

So committee participants were of the view that since we adopted that guidance in December, the economy has clearly made progress. Although, we are still a ways from our goal of substantial further progress. Participants expect continued progress ahead toward that objective. And assuming that is the case, it will be appropriate to consider announcing a plan for reducing our asset purchases at a future meeting.

So at coming meetings the committee will continue to assess the economy's progress toward our goals. And we'll give advance notice before announcing any decision. The timing, of course, the line, will depend on the pace of that progress, and not on any calendar.

BRIAN CHEUNG: So let's have a moment of silence for the death of talking about talking about tapering. Now, of course, the other thing that was worth mentioning from that meeting yesterday was the dot-pot projection. This comes quarterly. And we did see a noticeable uptick in where the 18 members of the FOMC could see rates going.

Now, it's interesting to see that 13 of the 18 now see at least one rate hike happening by the end of 2023. And the median member of that 18 member committee now sees two rate hikes over that time horizon. That's a very noticeable change from the March projections, which only three months ago showed no rate hikes through that time period.

So, of course, a lot of bond watchers, of course, kind of taking note of that. Although, we did see the 10-year blink as high as 159 basis points yesterday, it has since calmed down. So it seems like the market reaction maybe compared to people worried about a taper tantrum was definitely a little bit more muted than expected, guys.

MYLES UDLAND: Yeah, Brian. You know, we've seen that move in the Treasury curve. And I think that's the markets very clearly stating how they are reading the dots.

Jay Powell did not seem all that excited to discuss the dot-plot. This is a holdover from a lot of those projection materials the Fed adopted after the financial crisis. I don't feel like it's a real conversation to get rid of those dots, but certainly it seems that there is no getting away from the plot itself, right? I mean, it is the main story coming out of yesterday's meeting, even if Powell would like to have it a bunch of other ways.

And I do wonder-- and we talked earlier this week about maybe the Fed's communication job getting easier based on some of the incoming data. Well, the data they themselves provided yesterday I think makes that job now harder in the months ahead.

BRIAN CHEUNG: Yeah, and I think that's definitely the case where the Fed chairman was actively downplaying the role of the dot-plots in the press conference yesterday. And we have to remember that the dot-plots come out 30 minutes before the Fed chairman is able to offer any sort of commentary on that. So there was a 30 minute period where markets were saying, this is just the way that the Federal Reserve sees things. And then 30 minutes later the Fed chairman comes on and says, by the way, take this with a big grain of salt is the language that he used.

And he's already been talking about the idea of dot-plots maybe mixing up the message. He's made many speeches over the previous years, even well before the pandemic, where he compared the dot-plots to, for example, a Tzara'at painting, where people who are familiar with the art world know that it's a lot of dots, but if you zoom out, you can see that it creates a whole picture, like people picnicking at a lake, for example. He's saying that's what the dot-plots represent.

People are kind of looking at this myopic view of where rates might go, but you have to zoom out and see the whole picture, which is contextualized in more than just data. So I think we have to talk about the idea of dot-plots as something that, yeah, people do obsess over them. But the Federal Reserve is trying to say, especially in this kind of outcome based, not outlook based policy framework that we need to remember, this is just their projections. Their projections can change, especially over a 2 and 1/2 year period.

JULIE HYMAN: Ah, pointillism. Getting a little art history lesson for us from Brian Cheung and Jay Powell.

Nothing that happened in the meeting seemingly yesterday has gotten rid of this sort of central tension, though, between transitory versus not. Even though Powell, right, explicitly said, we're still seeing this as transitory. You know, even if the risks are a little bit higher now that inflation is going to be a little bit hotter than even we anticipated.

But like there's still a lot of chatter out there now in a lot of the reaction notes that we've seen that say, well, we're not sure about that.

BRIAN CHEUNG: Yeah, when it comes to inflation, what was a noticeable change in the Fed chairman's tone was acknowledging the upside risks of inflation. So you've heard in previous Fed chairman commentary, whether or not that's in the press conferences of previous months, or just in his other public speeches, he's really shied away from talking about the risk of inflation kind of being more persistent. But he said yesterday very clearly on a number of occasions in response to multiple questions that there is the upside risk that inflation could be more persistent than the Federal Reserve is forecasting.

Now, that doesn't mean that they're trashing the transitory kind of view here. And I think it is pretty much still the baseline view among a lot of the FOMC members, that supply chain bottlenecks and base effects of measuring current months to the deep pandemic months of last year is a big reason why we're getting these high readings. But I think you're starting to see Fed officials make this turn to say, well, we need to continue to watch over the next few months to see if those inflationary pressures could be a little bit more nefarious, something a little bit more deeply rooted, maybe something more demand pull related. They're not saying that's the case, but that the risk is definitely out there.

So transitory is a word that I expect we'll continue to hear. But, of course, the question of whether or not there's this momentum factor of inflation over the past previous months into the coming months, if you want to call that LINDY, maybe that's something the Federal Reserve will be watching very closely over the coming months.

JULIE HYMAN: I don't want to. But thank you, Brian Cheung.

BRIAN SOZZI: Neither do I.

[LAUGHTER]

JULIE HYMAN: All right.

MYLES UDLAND: I can't believe we got through that, and no one knows what year Brian Cheung was born in.

JULIE HYMAN: Oh, Brian Cheung--

BRIAN CHEUNG: Yeah, they'll have to go back and play previous episodes. I'm not going to do that this time. I'm not going to do that this time.

JULIE HYMAN: All right, the drinking games when it comes to word association and Brian Cheung's birth year continue. All right, thanks so much, Brian.