Fed Policy Uncertainty Under New Chair Warsh
Key Questions
What is Chair Warsh's current policy stance?
Warsh's Sintra speech signaled a hawkish bias, stating prices are too high and pushing back against rate cuts. Markets now price a 78% chance of a hold and 22% chance of a hike in July.
How have recent economic data affected Fed expectations?
Soft private payrolls of 57k versus 115k expected added ambiguity, yet yields rose as term premium and geopolitical risks dominated. PCE at 4.1% and core at 3.4% keep inflation concerns elevated.
What is the bearish outlook for US yields?
The bearish thesis targets the US 10-year yield at 6% by year-end. Renewed US-Iran tensions and oil above $80 have already pushed the 10-year to 4.56% and 30-year to 5.07%.
What fiscal pressures are influencing bond markets?
The US deficit has reached $1.4T with interest costs of $723B, adding structural fiscal pressure. A widening trade deficit to $77.6B is also raising inflation concerns.
What upcoming events are markets watching?
FOMC minutes from the first Warsh-led meeting are a key event. Treasury bill issuance returning and reserve balances near $2.9T also raise funding stress concerns.
Warsh's Sintra speech confirmed hawkish bias—'prices are too high'—and explicitly pushed back against rate cuts. Market pricing now sees 78% hold in July, 22% hike. Soft private payrolls (57k vs 115k) add ambiguity, but yields climbed as term premium and geopolitical risk dominate. Fed credibility under scrutiny after Miran's pivot from uber-dove to monetarism; Warsh's ambiguity adds uncertainty. Renewed US-Iran tensions and oil above $80 pushed 10yr to 4.56% and 30yr to 5.07%. PCE at 4.1% (core 3.4%), dot plot split (9 of 18 favor hikes) and BofA calling three hikes. Trump unexpectedly gave Warsh political breathing room. Reserve balances ~$2.9T raise funding stress. Bearish thesis targets US 10yr at 6% by year-end. FOMC minutes from first Warsh-led meeting are key event ahead. Treasury bill issuance returning adds to liquidity test. Trade deficit widening to $77.6B adds inflation concerns. US deficit $1.4T with interest costs $723B adds structural fiscal pressure.