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Wednesday is Warsh's first appearance since his inaugural Fed meeting. Will he demystify his thinking?
watchlist :: 4hrs ago :: source - yahoo finance
By Jennifer Schonberger
Investors will hear from Federal Reserve Chairman Kevin Warsh on Wednesday for the first time since his debut two weeks ago at the central bank's policy meeting.
Warsh is participating in a panel at a European Central Bank forum in Portugal.
If it's forward guidance markets are seeking, forget it. Warsh has made clear he wants to curtail it and doesn't think it's helpful for the Fed in practice.
But it's possible he could offer insight into what he thinks about assessing inflation and the economy. At his inaugural press conference, Warsh laid out a five-area task force that will examine making changes to how the Fed communicates; the data resources the central bank relies on to assess the economy; and the Fed's inflation framework, its balance sheet, and how it measures productivity in an era of technological transformation.
So, while Warsh is unlikely to offer forward guidance, he could perhaps offer "framework guidance."
"We will be attentive to how he frames the inflation outlook and its drivers including the slump in oil, the moderation in inflation expectations, other commodities, the strength of the dollar and AI cost spillovers — and the extent to which better expectations are conditional on enhanced credibility that needs to be validated," said Krishna Guha, head of central banking and strategy and economics for Evercore ISI.
One thing investors will likely hear with certainty from Warsh: the Fed's commitment to deliver on price stability.
Read more: How jobs, inflation, and the Fed are all related
The Fed's preferred inflation gauge, the Personal Consumption Expenditures index excluding volatile energy and food prices, rose to 3.4% in May, marking the highest level since October 2023.
Ed Yardeni, president and chief investment strategist for Yardeni Research, said he thinks Warsh is trying to lower borrowing costs by talking tough on inflation to bring down government bond yields, which influence mortgage rates and auto loans.
Warsh at his first news conference since taking the helm at the Fed, on June 17. (Chip Somodevilla/Getty Images). Chip Somodevilla via Getty Images
"We believe that there is a new Treasury-Federal Reserve Accord aimed at lowering the 10-year Treasury bond yield," Yardeni said in a note.
He said he thinks Treasury Secretary Scott Bessent and Warsh are working as a team and have convinced President Trump that the best way to lower borrowing costs is to talk tough about bringing down inflation and hike rates if necessary. That should lower bond yields, stimulating the economy.
Bessent recently acknowledged the power of the bond market and Trump's recognition of that. Speaking at the Economic Club of New York on June 23, Bessent said "the bond market has taken out more governments than howitzers" and that Warsh will optimize the path for both inflation and economic growth.
"I believe that [the president] has complete confidence in the Fed chair to do the right thing," Bessent said.
Warsh's hawkish comments at his press conference pushed the yield on the 2-year Treasury higher as markets priced in a rate hike, while the 10-year yield has since fallen from around 4.5% to around 4.3%. At the same time, markets are now pricing in a 50% chance of a hike in September.
While Warsh personally did not offer any new insight on monetary policy, the outlook for the economy, or interest rates beyond the Fed's official statement, nine of his colleagues penciled in at least one rate hike this year. Six members see at least two hikes, while eight see holding rates steady.
"If Warsh thinks he will have to hike to establish credibility, and thinks that implies at least two moves, then there is a case to hike in July and September to get it out of the way well before midterms," said Guha.
"Our sense, though, is he is not certain he needs to hike to establish credibility and will let July fade."
Jennifer Schonberger is a veteran financial journalist covering markets, the economy, and investing. At Yahoo Finance she covers the Federal Reserve, Congress, the White House, the Treasury, the SEC, the economy, cryptocurrencies, and the intersection of Washington policy with finance. Follow her on X @Jenniferisms and on Instagram.
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