“He testified very strongly to that effect, and I’ll take him at his word.”
So said Jerome Powell last week, when asked during his final FOMC press conference as Fed chair whether he’s confident that Kevin Warsh is in fact committed to preserving institutional independence.
I doubt Powell believes Warsh when he says, as he did on April 21, that he’s “no sock puppet” for Donald Trump. Indeed, Powell’s determination to stay on as a Fed governor rather than retire this month, and his stated rationale for doing so, suggests he harbors serious reservations about the motivation for Warsh’s “regime change” program for the Fed.
Part and parcel of that effort entails looking at different inflation measures which, as Warsh put it, better show “the underlying, generalized change in prices in the economy.”
There’s nothing “wrong” with that, per se. And the metrics Warsh is referring to aren’t voodoo. All the Dallas Fed’s version does, for example, is rank the change in index components from smallest to largest, lops off outliers from both ends and takes the weighted average of what’s left.
Some worry, though, that Warsh isn’t actually committed to those metrics on principle, but rather prefers them currently because they could be used to justify rate cuts.
The figure below shows you core PCE (i.e., what the Fed prefers) and the Dallas Fed metric.
On the trimmed mean measure, we’re more or less at target on the eve of Warsh’s confirmation and first policy meeting as Chair. (“How convenient,” I know.)
By contrast, the latest read on 12-month core PCE was 3.2%, 120bps above target and the fastest in over two years (although I should note that the MoM pace was the slowest since November).
If Warsh sticks to his message — “I prefer looking at trimmed averages [where] we take out all of the tail-risks, all of the one-off items, and we ask ourselves whether the generalized change in prices is having second-order effects on the economy,” as he told Congress — consistently, even when the trimmed averages don’t line up well with Trump’s penchant for lower rates, fine.
But if he deviates — e.g., reverts to core PCE when it paints a more favorable picture for a president inclined to easier monetary policy — he’ll lose any credibility he manages to establish.
The discerning among you can write the punchline yourself by eying the first chart above. Have a look at the spread between core PCE and the Dallas trimmed mean measure going back to the GFC:
The undershoot for one version of Warsh’s preferred measures is a 2020s phenomenon. Traditionally, core PCE (what Warsh wants to deemphasize) is the cooler of the two inflation metrics.
Indeed, as BMO’s Ian Lyngen remarked, “trimmed mean PCE has run hotter than core PCE in 75% of the months since 2000.”
What would Chair Warsh do in the event the longer-term trend reestablishes itself at some point during his tenure?
I worry that’s a rhetorical question, and I’m not alone. As BofA’s US rates team put it late last month, “To avoid optics of cherry-picking, Warsh will need to stick with his preferred metrics even when they are outpacing [core PCE].”
Powell deserves a Medal of Honor.
The Medal of Honor is the highest military decoration awarded by the United States for acts of valor in defense of the country. It is presented by the President in the name of Congress to service members who demonstrate conspicuous gallantry and intrepidity at the risk of life above and beyond the call of duty.
Technically, he isn’t military; but other than that, this absolutely applies.
Yeah, you know: I’ve come to believe, after eight years of watching and listening to him, that Powell’s an exceedingly rare example of what’s colloquially known as a “genuinely good guy.”
I nominate you to write his epitath.
Good luck getting the current POTUS to present him with the MoH.
I think powell is waiting for the inspector general report to clear him and for the word slurring liquor cabinet washington DC chief federal prosecutor to drop her case. And maybe the midterms. If I were a betting man I would expect powell to leave by early 2027 or sooner….
Looking at her face, Pirro has had so much work done that I wouldn’t be surprised if the slurring isn’t a side-effect of all that plastic surgery. She’s botoxed her nerves and plumped her lips into immobility. If you pull up a google image search of her, she pretty much only has access one facial expression. Even when she seems to be indicating unhappiness, it’s mostly through head tilt and closed lips. The rest of her face remains waxen and unmoving.
Damn, that was vicious. Not sure what got into me there.
I’m okay with it.
“This is a very complicated case, Maude. You know, a lotta ins, a lotta outs, a lotta what-have-yous.”
The Dude abides.
Upon Warsh’s confirmation, someone should give him a tattered terry cloth robe and a sheath of historical PCE releases so he’s ready for when the Dallas measure inevitably reverts.
“Don’t blame me … new shit has come to light!”
‘If he deviates… he’ll lose any credibility he manages to establish.” I’d like to know with whom this credibility would be lost from? There is only one person he needs to please.
I’m really hoping you’ll be able to get a Kevin can F*** Himself reference into a future Warsh post.
In addition to the likely well founded suspicion that Kevin is cherry picking an index that for now is justifying a looser monetary policy, I thought theoretical basis for the core measure was that it excluded components that don’t react to monetary policy. That is no interest rate level is going to open the Straits Times of Hormuz, nor will it do anything for food prices should a plague of locusts sweep the Midwest. To the best of my knowledge, the trimmed index has no similar justification.
Not sure how Warsh has any credibility. We can expect that he will do what has historically done, cherry pick data to fit the fascist propaganda narrative of the moment. He’s a fascist whore. Calling him a sock puppet is an insult to sock puppets.
Being sock puppet is like being a lady. If you have to tell people you aren’t, you are ( thank you Maggie T)
The treats against Powell and the FED are still coming. Poor Keveen doesn’t stand a chance…
These are from Nick Timiraos:
The pit bull: Pirro told CNN’s Jake Tapper on Sunday that the criminal probe of Powell isn’t yet closed. She’ll end it if the IG finds nothing—”I’ll go home.”
But she reserves the right to review the IG’s underlying material and reach her own conclusion. As a DA, she said, she sometimes told investigators: “You found nothing, but I found a crime.”
As expected, she said she plans to seek a ruling that sets aside a judge’s ruling to quash the subpoenas in order to avoid adverse case law from the Fed’s successful effort to have those tossed.
The basset hound: Bessent’s comments to Bartiromo about the Fed on Fox News:
“If we think about the Powell Fed, if we think about monetary policy, ethics and supervision, they weren’t great. Monetary policy, we had the worst inflation in 48 years. Ethics, we had five governors or regional bank presidents have to resign for ethical problems. And then we had three of the four largest bank failures in U.S. history. So I’m looking forward to getting on with the Warsh Fed.
It’s Chair Powell’s decision to stay as a governor if he wants. I think it violates all norms. They would say that one other governor did stay. That was at the request of the president. The president has not requested that Chair Powell stay. I am optimistic that after a period, he may move on. I think that it would be inappropriate to overshadow—I wouldn’t call this a shadow chair. I’d call it an overshadow chair. And I hope the Chair Powell will move on over the short term.”
Treats=threats, a moment of dyslexia!