“The plain fact is that inflation is too high and has been for too long,” Kevin Warsh declared on Wednesday afternoon in the US, following the first Fed hike in three years.
In his opening remarks at the press conference, Warsh said the incoming data “does not tell me that inflation trends have meaningfully improved.” “Too many categories are still posting increases above 3% on both a six- and 12-month basis,” he added.
In my September FOMC preview, I took Warsh to task on the litmus test he delineated last month in Jackson Hole. The Fed, he told the audience in Wyoming, “must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed.”
Data received since then doesn’t suggest inflation inflation’s moving to the Fed’s objective, and “certainly not ‘at sufficient speed'” I wrote four days ago. On Wednesday, Warsh agreed, quoting his own standard and explicitly conceding it isn’t met.
Apparently at Warsh’s request, the Q&A at the presser was more democratic. Steve Liesman, Nick Timiraos and Mike McKee appeared to lose their privileged positions in the queue in favor of sundry nobodies.
The only big gun reporter to get an early question was Colby Smith, who pointed out that the Fed rarely hikes just once. Warsh refused to take the bait. “I’m not in the forward guidance business,” he said. “I won’t prejudge future decisions.”
When CBS noted that a quarter-point rate increase from the Fed “doesn’t reopen the Strait of Hormuz,” Warsh agreed. “We cannot affect any individual price,” he said. “But what we can do is ensure that any change in relative prices doesn’t broaden out.”
ABC asked about Trump’s calls for cuts. (Somebody had to.) Warsh demurred: “I’ve got nothing for you.” Later, The Washington Examiner mentioned Trump’s threat to sever trade ties with countries that run a surplus with the US if the Fed doesn’t cut rates. (Somebody had to do that too.) Warsh said the Fed will stay in its lane and suggested “the people who do trade policy” do the same.
In response to a question from the FT, Warsh indicated that a majority of Fed officials, including himself, found it hard to describe financial conditions as restrictive. The implication: Policy was likely accommodative, at least at the margins, and Wednesday’s hike was a step towards removing that accommodation.
When Liesman finally got a question, he wondered after Warsh’s views on the neutral rate. Warsh called r-star “useful academically,” but said it “has no effect on operational decisions.”
Politico wondered if traders put too much weight on last week’s CPI report when it came to assessing the likelihood of a hike this week. In response, Warsh simply said he doesn’t himself “wait breathlessly” for the release of any one data point. “Trends matter,” he said. “Data point dependence is a dangerous preoccupation.”
Asked what rising bond yields are trying to tell the Fed, Warsh said three things have pushed long-end Treasury yields higher since the July FOMC meeting: The strength of the US economy, competition for capital amid high-grade corporate issuance to fund the AI buildout and geopolitics. On the latter, Warsh mentioned crack spreads specifically.
In the course of deflecting a question from Timiraos, Warsh emphasized that stable prices are intrinsic to economic prosperity. In hiking rates on Wednesday, the Fed “took an important step towards delivering price stability,” he said.
Earlier this week, Trump chastised his three SCOTUS nominees for disallowing curbs on mail-in voting ahead of the mid-terms. “These are not the people I interviewed,” he seethed, of Amy Coney Barrett, Neil Gorsuch and Brett Kavanaugh. “They are merely a shell of their original selves.”
I imagine Trump’s thinking something similar about Warsh on Wednesday: “This is not the man I interviewed. He is merely a shell of his original self.”
“Data point dependence is a dangerous preoccupation.”
Bravo Chairman. But has he given any thought whatsoever to the number of highly paid people who earn their pay by estimating each & every stat?
I hope Warsh has his mortgage docs in order.
I am happy he raised rates, but it sounds like he did — and said — about the absolute minimum he had to. It is reassuring that the vote was unanimous. Perhaps the other Fed members felt they had to present a united front. As of 1:00 PM Pacific time, the 2-year yield was up nearly 8 basis points; 20s and 30s were both down less than one basis point; the yield on all other maturities was higher. I don’t know if that tells us everything we need to know, but it seems like the long end was not overly impressed. The Dow was down over 1%.
Trump official statement: “Interest Rates in the United States should be 1%, or less, because we are the Best Credit in the World — BY FAR. Our Country is BOOMING with new Investment! If we stopped Trading with every country that we have a Deficit with, which is most of them, we would make, at least, 1.5 Trillion Dollars a year. The word “Deficit” is nothing more than a fancy word for LOSS. We are “carrying” almost every country in the World, and that cannot go on any longer. LOWER THE INTEREST RATES FOR THE UNITED STATES OF AMERICA, AND FAST! President DONALD J. TRUMP”
Clearly, this is not his official statement. It was missing the trademark “THANK YOU FOR YOUR ATTENTION TO THIS MATTER!”
In all seriousness, he might literally be the dumbest human being on the planet.
So Trump knew it was coming and gave his grudging assent to the inevitable. Warsh is in the clear.
For now.
Truth. The trigger has been pulled, the gun went click. Who knows where the next spin of the chamber will take us?
…
Wait I actually really like this metaphor. Formalized: “Dealing with Trump is like playing Russian roulette, only he always gets to hold the gun, and he never points it at himself.”
I don’t know. When he threatens to stop trading with everyone unless rates get lowered, I was getting Cleavon Little vibes.
Something like this maybe?
“I’m relying on Kevin, but he’s got a very tough board,” Trump told reporters Wednesday night. “He’s got a board that was put there by a lot of other people. And the interest rates are too high. They’re not appropriate. I told Kevin, I said, ‘you might as well vote with the board because it’s just not going to matter.’ The board is very hostile. They’re very political. They’re doing the wrong thing.”
Nailed it.
I regret that Powell could not deliver an assessment that burgeoning budget deficits, driven in no small part by construction and “beautification” costs and related cost overruns, along with self-administrered snafus and relentless litigation, forced the Fed to raise rates, despite its preference to otherwise hold or even lower them.
Did Peter Navarro write this ?
No, it was clearly Ron Vara.
It suddenly occurred to me that Warsh’s “policies” are all weeds designed to cover him from any outside criticism for anything. Trump can say what he wants but Warsh won’t fold. Trump’s going to take it and get no where. Warsh is going to be a new precedent.
We have started a new rate hike cycle. Probably a globally synchronized one. Bullish, not.