Warsh's Fed Leaves Rate Path a Mystery
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- Kevin Warsh kept his first news conference as Fed chair opaque, telling reporters "I can't give any forward guidance about what we're going to do next. The good news is, we'll be meeting in six weeks."
- Federal Reserve rate policy could swing from multiple hikes starting in late July to holding rates steady indefinitely, with the Fed's preferred inflation measure up 3.4% over the past 12 months.
- Inflation has run above the Fed's 2% target for five consecutive years, with debate over how much of the recent excess reflects one-off factors like tariffs and Strait of Hormuz supply disruptions versus persistent price pressures.
- SGH Macro Advisers analysts Tim Duy and Josh Lehner outlined two competing rate paths: one continuing former chair Jerome Powell's tolerance of above-target inflation, the other triggering a "sharper break" with hikes.
- Warsh has long held that the Fed should "spend less time talking and more time doing," treating trader uncertainty as a feature rather than a bug of his chairmanship.
- Forward signals will come at an European Central Bank conference in Sintra, Portugal on Wednesday and at semiannual monetary policy testimony before Congress in mid-July, ahead of the next Fed meeting at the end of July.
Why it matters: Traders who built strategies around a dozen years of Powell-era dot-plot signaling have lost their primary forecasting tool, with Warsh's reaction function described as "a black box." With the Fed's preferred inflation measure at 3.4% and five straight years above target, Warsh's appearances at Sintra and in mid-July Congressional testimony will set the tone for the late-July policy meeting — and his long-held view that surprise moves are acceptable leaves markets vulnerable to a sharper break from the prior regime.
