FOMC Rate Decision Recap

Flash Update: US RATE MARKETS – THURSDAY JUNE 18, 2026

• UST yields and SOFR swap rates are lower, and the yield curve is flattening; the back end of the curve has seen the most pronounced move this morning

• The US-Iran interim peace accord has been signed; Oil prices are moving lower, leading to lower rates across the curve this morning

• Yesterday, the FOMC held the benchmark rate unchanged and firmly reiterated their commitment to “price stability”

• The new Chairman sent a clear message to markets yesterday – the Fed will not tolerate higher inflation

• Rates surged during Mr. Warsh’s press conference as he made it abundantly clear that he remains an inflation hawk

• The new FOMC Chairman also announced that he was forming a Fed “task force” to review the Fed’s policies, procedures, data analysis, communication, and balance sheet

• Mr. Warsh also revealed he would no longer be providing any Fed “forward guidance”, representing a major change to the way the Chairman has traditionally communicated with the public

• To that end, Mr. Warsh declined to provide an individual “dot” or revised economic projections – several times during the press conference he declined to answer questions relating to Fed forward guidance

• The US/Iran conflict remains a primary driver for the rate markets, though market sentiment has significantly improved

• Next up for data: May PCE will be released on Thursday, 6/25 at 8:30 AM

• Short-term SOFR swap rates are trading down ~1 bp this morning, depending on tenor

• Medium-term SOFR swap rates are down ~1 bp currently, depending on tenor

• Long-end SOFR swap rates are down ~1-2 bps this morning, depending on tenor

Good morning – US Treasury yields and SOFR swap rates dropped this morning, as positive news out of the Middle East pushed oil prices and rates lower. The back end of the curve is seeing the most pronounced move this morning, as the yield curve flattens. Rates have settled down somewhat after a tumultuous afternoon yesterday – 2-year Treasury yields, which closely track Fed expectations, surged ~13 basis points during the Warsh press conference. That was the biggest jump since April 2025 and matched the largest rate increase on a Fed meeting day since 2008. Clearly, the market did not expect the overtly hawkish message from the Fed, and Chair Warsh. My take: there is still tremendous uncertainty regarding the path forward for interest rates, but there is a strong probability now that the Fed’s next move will be a rate hike.

That said, developments in the Middle East remain the primary market driver – news that the peace accord had been signed and that traffic was trickling through the Strait of Hormuz was well received by the markets. Oil prices retreated, and rates followed closely behind. I do not see traders overreacting to the news, but I do think that if oil prices continue to drop, rates will be biased lower, particularly on the back end of the curve. Yes, based on yesterday afternoon’s market action, it is clear to me that the market is worried about a rate hike; however, that sentiment could change quickly if the war induced inflation pressure is removed from the rate equation. I think the next 30 days will give us a clearer picture of the outlook for interest rates for the remainder of 2026.

Despite the dip in rates this morning, SOFR swap rates remain at or near the 12-month highs – that is keeping the pressure on cap premiums.

“Key News” the market is tracking includes:

• Geopolitical developments continue to weigh on markets.The US/Iran “war” will continue to dominate market sentiment.

• Kevin Warsh begins his term as Fed Chairman. He will oversee his first meeting as FOMC Chairman on Wednesday 6/17. From the market’s perspective, there are still many questions surrounding Mr. Warsh’s monetary policy views and his plans for the central bank.

• Market participants continue to track developments in the US equities markets. There is still a sharp focus on the performance of the growing AI sector. Overall market sentiment, and perhaps even economic performance, could be impacted by “tech” earnings for the foreseeable future.

• SCOTUS is currently ruling on the legality of the President firing of the Fed’s Lisa Cook. There are some reports stating that SCOTUS is nearing a final decision on that case, which could have far reaching implications for the US Central Bank.

SOFR Swap Rate Summary: The 1Y SOFR swap rate is trading down ~1-2 bps this morning. 2Y and 3Y SOFR swap rates are currently trading down ~3-4 bps. 5Y and 10Y SOFR swap rates are trading down ~4-5 bps this morning. The very back-end of the swap curve is currently trading down ~4-5 bps from yesterday’s closing levels.  

Please note: Market levels can change rapidly – rate cap premiums are subject to a dynamic market that can change frequently.

CHART 1:US RATES SNAPSHOT: 10:45 AM Eastern

Chart 1 Key:

• Far Left Columns:US Treasury Yields & Change on Day (bps)

• Center Columns:SOFR OIS Swap Spreads (bps) & Change on Day (bps)

• Far Right Columns:SOFR OIS Swap Rates & Change on Day (bps)

UST YIELDS | SWAP SPREADS | SOFR SWAP RATES

Source: Bloomberg, LLP | 10:45 AM NY Rates Snapshot

CHART 2, 2A, 2B & 2C: SOFR SWAP RATES TICK LOWER AS US-IRAN PEACE ACCORD SIGNED; OIL PRICES RETREAT

SOFR swap rates are lower this morning, as the signed peace accord has pushed oil process lower and opened commercial traffic in the Strait of Hormuz. However, after yesterday’s hawkish press conference from Chair Warsh, markets are now seriously weighing the prospects for a Fed rate hike – perhaps as soon as September. Rates surged during Chairman Warsh’s press conference yesterday as he, somewhat surprisingly, strongly reiterated that the Fed will not tolerate higher inflation. His remarks increased the odds for a Fed rate hike – odds for a 25 bp rate hike in July are now at ~36%, and the odds for a rate hike at the September meeting have now ramped up to 68%.

Key SOFR Swap Rate Movements Since The US-Iran War Began:

• The 2-year SOFR swap rate closed at 3.21% on Friday 2/27 – it is currently trading at ~4.014%(+80.4 bps).

• The 5-year SOFR swap rate closed at 3.22% on Friday 2/27 – it is currently trading at ~3.924%(+70.4 bps).

• The 10-year SOFR swap rate closed at 3.52% on Friday 2/27 – it is currently trading at ~4.024%(+50.4 bps).

CHART 2:Short-End SOFR Swap Rates – Since 2/27/2026 (Start of War)

Source: Bloomberg, LLP | 1Y (white), 2Y (blue) & 3Y (orange) SOFR SWAP RATES; SINCE 2/27/2026

CHART 2A:Long-End SOFR Swap Rates – Since 2/27/2026 (Start of War)

Source: Bloomberg, LLP | 5Y (green), 7Y (purple) & 10Y (light blue) SOFR SWAP RATES; SINCE 2/27/2026

CHART 2B:US Treasuries: Yield Overview, Prior 6-Months

Source: StreetStats | US Treasury Bill, Note & Bond Yields; Prior 6-Months

CHART 2C:Oil Prices Retreat as Interim Peace Deal is Signed

Source: Bloomberg, LLP | WTI CRUDE OIL PRICES SINCE JUNE 2025

CHART 3 & 3A: FOMC RECAP – FED HOLDS; WARSH ANNOUNCES FED “TASK FORCE”, SAYS FED WILL NO LONGER PROVIDE FORWARD GUIDANCE

Yesterday marked the start of a new era for the Federal Open Market Committee as Kevin Warsh began his term as FOMC Chairman. As anticipated, he got right to work and has ambitious plans to “overhaul” the Fed. The key takeaway from yesterday’s announcement, dot-plot and press conference was that the Fed is committed to fighting inflation and is committed to the 2.0% inflation target. Traders had feared that Warsh would capitulate to White House demands for lower rates. There was not even a hint of that yesterday!Warsh sounded as hawkish as ever – remember he was a staunch inflation hawk during his previous term serving as Fed governor.

I got three clear messages from the Fed and Mr. Warsh yesterday:

1. Chair Warsh delivered a clear, concise, and strong message to markets yesterday. The overriding theme was that higher inflation will not be tolerated.

2. Mr. Warsh has ambitious plans to overhaul and “update” the FOMC. He started yesterday: Warsh announced that the Fed will no longer provide official forward guidance, and he declined to provide a “dot” or revised economic projections, a radical departure from the last three Fed Chairs. There is a concern in the market that the reduced Fed communication and transparency will increase market volatility. We will have to wait and see. I am on the fence – Warsh asserts that it is better for markets to react to economic data real time, rather than react to how they think the Fed will react – I am interested to see if that is the case, or if the reduced communication adds to increased uncertainty and volatility.

3. On balance voting FOMC members, although clearly leaning hawkish at the moment, are still extremely uncertain about the ultimate path forward for interest rates this year.

Mr. Warsh announced he was establishing a Fed task force to review five key areas: Fed Communications, Data & Data Analysis, Productivity & Jobs, the Inflation Target Framework, and the Fed’s balance sheet. The task force is just getting started, so I expect there will be much more to be revealed in the coming weeks. Bottom line, prepare for changes in the way the Fed communicates, analyzes data, and manages the federal balance sheet.

From a market perspective, traders are betting on the possibility of an interest-rate hike as soon as next month. The hawkish message was driven home by the “dot” projections of individual Fed members, half of whom expect to raise rates by the end of the year.

To conclude, I expect the market to give Chair Warsh the benefit of the doubt for now. Warsh alleviated fear he will be politically motivated, left no doubt that he remains an inflation hawk, and made it clear he is preparing to overhaul the way the Fed communicates, how they collect and analyze data and perhaps even how they manage monetary policy. Stay tuned!

CHART 3:Market Expects the Fed’s Next Move to be a Rate Hike…25 bp Rate Hike Now Fully Priced in by Year End

Source: Bloomberg, LLP | FED POLICY PATH EXPECTATIONS THROUGH Q1 2028; OIS SWAPS

CHART 3A: Warsh Sends Clear Message: Fed is Committed to Price Stability; Rates, Volatility Rise During Warsh Press Conference

Source: Bloomberg, LLP | 2-YEAR TREASURY YIELD – ONE DAY “MOVES” SINCE JUNE 2024

RCA Product & Pricing Update:

Product Spotlight: What We Are Seeing In The Rates & Derivatives Markets

The market is once again facing tremendous uncertainty surrounding the path forward for interest rates. Borrowers should be as nimble as possible in this market environment. Cap purchasers should onboard as quickly as possible – there is no cost to onboard. It is important to be in a position to take advantage of market opportunities quickly and efficiently.

Given the high-level of uncertainty surrounding forward rates, many clients are grappling with when or if to extend. This is a difficult question – our advice has been to monitor the market closely and be on-boarded and ready to trade, should the market move in your favor. We also advise borrowers to check the market pricing for extensions, similar to how you purchased the original cap. Market pricing discovery is a key component to any cap transaction – new caps, extensions or terminations.

There is an increasing interest in exploring interest rate swaps as a possible hedge alternative. IR Swaps lock in a synthetic fixed rate and do not require an upfront premium. Unlike an interest rate cap, swaps are secured derivatives, so the counterparty selection process is more challenging with a swap. There are also additional variables that factor into the decision to pursue an interest rate swap, or to unwind an existing swap. We are also seeing a dramatic increase in swap termination advisory requests recently, as clients contemplate refinancings. Lower rates have sparked refinancing activity, which in some cases necessitates unwinding an existing swap. Please let us know if you would like to learn more about interest rate swaps, or swap terminations.

We are still seeing some residual demand for interest rate floor indications – to offset high loan floors or simply to benefit from declining variable rates. Borrowers who have “floors” embedded in their loans have been considering purchasing a separate, stand-alone interest rate floor to offset the loan floor.

Interest Rate Cap Hub: Pricing & Volatility Update for 6/18/2026

• Current 1-Month Term SOFR = 3.63903% (Prior Reset: 3.63718%)

• Cap premiums increased yesterday – SOFR swap rates and volatility ticked higher during Chair Warsh’s press conference

• The signing of the interim Middle East peace accord and lower oil prices are providing some relief to cap premiums this morning

Cap Pricing Matrix:1-Month Term SOFR Cap Premiums: Week-On-Week

*Indications as of market open. Premium levels provided are indications only and subject to change.

^NOTE: MARKET DYNAMICS AND PRICING CAN CHANGE VERY QUICKLY IN THIS MARKET ENVIRONMENT.

WE RECOMMEND YOU CALL US FOR ACCURATE, UP-TO-THE-MINUTE CAP INDICATIONS.

Please contact us if you would like to discuss an upcoming rate cap or rate cap extension, explore ways to reduce or eliminate escrow deposits for replacement caps or learn more about interest rate Caps, Floors, Swaps or Swaptions. RCA can also assist you with the voluntary early termination of your cap or swap.

HedgeWithAnEdge-TheRCAEdge!

Disclaimer: The information provided in this communication is intended for discussion purposes only. Nothing presented in this communication should be taken as a recommendation or forecast. All market data shown is indicative only and subject to change depending on current market conditions. The information in this publication is confidential and is intended for the recipient only.