〔Day Digest〕Warsh-Led Fed Lifts Rates 25bp to 3.75-4.00%, 13bp More Priced for October, 10Y Back Above 5% and DXY 100.3 — Asia Equities and Gold Past $4,300 Refuse to Cooperate

0. Weekly Arc

The Fed ended a three-year pause with a unanimous 25bp hike to 3.75-4.00% under new Chair Kevin Warsh — the first move since July 2023 — and the dot plot's median kept one more 2026 hike on the table and rates at 4.1% through 2027 ^[1][2]. The communication read hawkish: Warsh's "unwinding accommodation" framing, the removal of the "supply shocks" qualifier from the statement, and the SEP's lower-unemployment / higher-inflation mix pulled front-end pricing tighter, with Citi now flagging October as a "live meeting" and ~13bp of incremental tightening priced ^[3][1][4]. Yet the cross-asset response was bifurcated — DXY pushed to 100.3 and the 10Y back above 5%, but Asia equities firmed, Nasdaq 100 futures rose up to +1.1%, and gold rebounded past $4,300 ^[5][1][6]. The remaining question is timing, not direction.

1. Policy Decision and the Warsh Communication

• **[NEW] Decision:** unanimous 12-0 vote to raise the target range by 25bp to 3.75-4.00%, the first Fed hike since July 2023, under the leadership of Chair Kevin Warsh in his first hike at the helm ^[1][2].
• **[NEW] Dot plot (18 of 19):** median implies one more 2026 hike and a 2027 terminal of 4.1%; Warsh again declined to submit a dot, the second consecutive meeting ^[7][8]. The Fed is also reviewing the future of the dot plot under a new communications committee ^[8].
• **[NEW] Statement edit:** the July phrase tying inflation partly to "supply shocks" pushing up energy and other prices was removed, narrowing the inflation narrative to domestic factors ^[4].
• **[NEW] SEP:** unemployment forecast cut, inflation forecast raised ^[1]. Warsh framed the move as "unwinding accommodation" rather than "adding restriction" ^[1].
• **[NEW] Political context:** President Trump told reporters he had told Warsh to "vote however you want," said Warsh's vote would not have changed the outcome, then criticized the hike as "too high" while expressing continued confidence in the chair; Warsh declined to comment on whether he and Trump had discussed the decision ^[9].

2. Market Reaction Across Asset Classes

• **[NEW] Rates and FX:** 10Y UST yield rose from 4.95% to above 5%, DXY climbed from 99.7 to 100.3; gold fell from $4,350/oz to around $4,265/oz in the US session, then rebounded more than 1% past $4,300 in the Asian session ^[1][6].
• **[NEW] US equities overnight:** all three major indices closed lower; US equity futures stabilized into Asia, with S&P 500 futures +0.5% and Nasdaq 100 futures up to +1.1% ^[5][6].
• **[NEW] Asia session:** Japan's TOPIX +0.8-1.0%, Nikkei 225 opened +0.87% then faded to +0.18%, S&P/ASX 200 ~+0.3%, KOSPI opened +1% then slipped to +0.6%, Kosdaq +0.57% ^[6]. Hong Kong's Hang Seng was -0.73% at midday at 24,533 with HKD 99.1bn turnover; the Hong Kong Monetary Authority followed the Fed with a rate hike, supporting HKD funding-cost pressure on Hong Kong tech, with CICC's analysts and Guangzhou Yuesheng's Li Qian flagging the risk of international capital flowing back to the US ^[10].
• **[NEW] Seasonality caveat:** September is historically the weakest US equity month; the Dow's first 10 sessions were the worst since 2008 ^[11]. Some firms have cut S&P 500 year-end targets, with Charles Schwab Center for Financial Research head of macro research and strategy Kevin Gordon flagging labor-market resilience against tightening risk ^[11].
• **[NEW] Mortgage/bond read:** per MNI Mortgage News Daily, bonds ended only modestly worse than the prior afternoon despite the hawkish communication; nearly half of the FOMC is now seen as projecting at least two more hikes in this cycle ^[12].

3. Path Divergence: October vs December

• **[ESCALATED] October-live camp (Citi, money markets):** Citi Research calls the October FOMC a "live meeting" with ~13bp of further tightening priced; CME-derived money markets imply ~50% odds of an October move ^[3][6].
• **[ESCALATED] December-camp (UBS, Morgan Stanley, JPMorgan AM):** UBS Investment Bank keeps a December +25bp call with risks tilted up ^[7]; Morgan Stanley layers a March 2027 +25bp on top of a December move ^[13]; JPMorgan Asset Management's Asia-Pacific chief market strategist Xu Changtai argues the Fed will likely wait until December because the October FOMC sits just before the US midterms ^[14].
• **[ESCALATED] Cautious-DXY camp (DBS):** DBS Bank FX strategist Philip Wee says this is not a 2022-style US-led hiking cycle, the Fed is catching up to peers, and DXY should remain in the 96-102 range formed since mid-2025 ^[15].
• **[NEW] 2027 layer:** the dot plot shows rates at 4.1% through 2027, with markets now pricing additional hikes in January and April 2027 on top of the December 2026 move ^[7][1].
• **[ESCALATED] Regional read:** the Bank of Korea says it expects the Fed to remain restrictive given Warsh's price-stability emphasis ^[16].

4. Tail Risks and Falsifiable Tests

• The single dominant near-term test is the October FOMC, which lands just before the US midterms and is now "live" by Citi's reading ^[3][14]. A December-only path requires no incremental hawkish data between now and then; an October move requires the data to lean the SEP's higher-inflation / lower-unemployment mix ^[1][14].
• Dot-plot integrity is now a market-moving question: Warsh's second consecutive absence plus the new communications-committee review mean the median may increasingly reflect fewer than 19 voters, and the 2027 terminal of 4.1% is now the binding consensus number rather than a media-friendly headline ^[7][8].
• Source control flags: the CICC, Guangzhou Yuesheng (Li Qian), Xingye Securities (Liu Yu), Impax Asset Management, and Charles Schwab (Kevin Gordon) calls are single-source social/cable relays and should be treated as illustrative ^{[17][10][18][11]}. Money-market and CME prints should be quoted as a band, not a point ^[3][6].