I’ve been on at considerable length since Kevin Warsh’s FOMC debut this month about the idea that a lot of market participants are exhibiting something that looks very much like naivety regarding the new chair’s commitment to putting price stability before politics.
Or maybe it’s Warsh who’s naive. Maybe he actually believes Donald Trump will leave the Fed free to make policy as it sees fit, unburdened by the sort of public derision and, eventually, legal bullying to which the Powell Fed was subjected.
The point isn’t to demonize Warsh nor to suggest he’s completely oblivious to his own predicament. (Although I do wonder, in a generic sense of the term, about someone who’d wittingly insert themselves into a lose-lose situation.)
Rather, my contention is that given everything we’ve seen and heard out of Trump regarding monetary policy, and considering what we all know to be true about the Fed’s unspoken mandate to prop up a domestic equity market that’s far, far too big to fail, it’s bizarre, bordering on deluded, to price Warsh’s return to the Fed (remember, he’s been there before, just not as chair) as a hawkish epoch.
If you’re inclined to call that a strawman, I’ve got news for you: It’s not.
The figure above — hat tip to BMO’s Ian Lygnen whose weekly brought the San Francisco Fed’s Monetary Policy Event-Study Database to my attention — shows you the move in the fifth-month Fed funds contract during Warsh’s debut.
So, according to STIRs, we’ve just witnessed the most hawkish FOMC communication event in 32 years. We’re to believe that June 17, 2026, constituted a watershed moment in US monetary policy, and that at no point over the past three decades have Fed communications been so unambiguously hawkish.
(As a quick, but relevant, aside, savvy readers will say something about the paradox and the irony of calling the June FOMC a “communications event.” Warsh formally jettisoned forward guidance this month — i.e., the biggest takeaway from this particular “communications event” was that the Fed intends to severely curtail “communications.” That, in turn, is part and parcel of why the event was traded as it was. Forward guidance was associated with dovish policy, so the withdrawal of forward guidance must be hawkish.)
Again, it strikes me as little short of absurd that second-term Trump — a man who tried to prosecute his last Fed chair and who was willing to take a case against another policymaker all the way to the Supreme Court just to create a board vacancy — will countenance a wholesale hawkish shift.
That’d be completely at odds with Trump’s predilections, not to mention inconsistent with what history tells us about populists, demagogues, autocrats and domestic monetary policy.
On Friday, CNBC said that in light of four-handle inflation, the Trump administration’s signaling “an extended political grace period” for Warsh. As one unnamed official close to The White House put it, “I think the president’s position is a lot more nuanced than ‘there need to be rate cuts.'”
Right. Sure. Because that’s what Trump’s known for. Nuance.
I can’t wrap my head around Warsh’s ‘less communication is better communication’. Seems like it’s better to guide people’s thinking than let their imaginations run off a cliff.
The 200 day MA is around 6,900 and change on the S&P. Would probably also be close to where the hyper scalers go bear market. That is where I would expect old Kevin start getting a critique on his golf game from John Barron.
Wonder how construction on the Eccles Building is going?
Lol
I think his less communication is better is because he doesn’t have to defend his position while doing Trump’s bidding.
Warsh, the John Roberts of the Fed. Trump owns Roberts and Warsh will be next.
Day in and out since the FOMC, I am watching the financial media jawboning Warsh’s “impeccable hawkish credibility.” The media is doing their billionaire-best to keep that plate spinning. I suspect Warsh will try to cut rates and then tighten in ways Trump can’t understand, like runoff, and low communication, but the first sign of a correction and the media will be jawboning how easing is “just what Warsh must do.”
But as everyone here must understand, the liquidity draw from higher vol, lower communications, and the paper-thin reputation of Trump’s hand-picked second Chair are the setup of a very precarious reality. Meanwhile the same media hoping Warsh is credibly hawkish jawbones “the bears and debasement trade is so over, just pile in! The water is HOT! Don’t miss it!”
And what is the secret behind Warsh accepting being total compromised of character? Ego, prestige and a narcissists imagined legacy. Warsh thinks he can deliver the best Chairmanship ever. That’s the hubris $200 million in the bank brings.
“One cannot not communicate”
Paul Watzlawick, Janet Beavin Bavelas, and Don D. Jackson, Pragmatics of Human Communication, (1967) p.48
A perfect description of Trump.
Heretofore known as Mr. “Noance.”
Warsh’s history suggests he is a political animal. That is fine as long as he isn’t partisan. I have my doubts on that but we will see. He is likely to do nothing on rates until late this year at the earliest- study groups buy him time. Getting rid of the dots looks like a good idea. And so is deleting foward guidance which is more useful at the zero bound. Reducing other communication is not such a good idea though; it reduces accountability. His presentation was a head fake. We will see if he is really serious about being a hawk the next financial event. Let ‘s hope the response is appropriate. As for trump jawboning….by this time next year he will be 110% focusing on the gift. Fed policy will only concern him to the extent loose policy will help his finances.
The messenger has delivered the message (Kevin to Kevin), Kevin Hassett on Fox: Kevin Hassett tells Fox’s Maria Bartiromo that it would be a “macroeconomic mistake” for the Fed to raise rates, and he implies that
• Warsh doesn’t want to tighten policy but faces an unruly committee that might disagree
• That Fed officials who want to tighten are motivated by their dislike of President Trump
Transcript: “Chairman Warsh has said over and over that he believes, as I believe, as you probably believe, that we’re at a supply-driven boom, both because we’ve got A.I. and because we’ve got all these supply side tax cuts for labor, with the no tax on overtime, no tax on tips, and so on, and so in that backdrop, it’s just a macroeconomic mistake to raise rates.
“We trust that the Fed will be data dependent, and that if they think they’re going to see inflation numbers that are through the roof that are going to make them really have to raise rates, well, they’re going to be proven wrong. But we’ll see what the data have to say…
“And I’m concerned with Jay Powell’s staying [on the Fed’s board] that there’s a majority of people over at the Fed that are not necessarily going to be voting because they’re patriotic, but rather because they want to get Trump. And we’re going to have to keep a close eye on that, and you can bet it’s not going to be Kevin Warsh’s fault, but he’s got to herd some cats over there, and it’s a really difficult job.”
Source: Fox Business Network’s “Mornings With Maria”
https://x.com/NickTimiraos/status/2072386756469473686?ref_src=twsrc%5Egoogle%7Ctwcamp%5Eserp%7Ctwgr%5Etweet