Fed Rate Pulse

FOMC minutes from Warsh's first meeting (June 2026) confirm deep internal split: 9 of 18 members projected a hike, some considered a hike due to war fallout. Warsh dropped forward guidance. Consumer inflation expectations rose to 3.7%. AI infrastructure flagged as persistent inflation driver. The June CPI came in much cooler than expected (-0.4% MoM, 3.5% YoY vs 3.8% expected), sending Treasury yields sliding and July hike odds crashing from 42% to 17%. Warsh's first Capitol Hill testimony reinforced his inflation-fighting stance and signaled a formal review of the 'ample reserves' regime. He stated 'I can only be my own man,' breaking from Powell's approach. He confirmed he meets 'often' with Treasury Secretary Bessent and defended Fed independence, but declined to say if he spoke with Trump. The CPI miss initially kills July hike odds, but renewed Hormuz tensions and Warsh's hawkish stance put September back on the table (CME FedWatch September odds ~58% but volatile). Money market funds are turning defensive, shortening maturities and piling into FRNs/repos, with 80% probability of a December hike from FedWatch. Dollar slipped on CPI but remains supported by geopolitical risks. Fed monetary policy report cited 'stepped-up' inflation from tariffs, Iran war, AI buildout. Dallas Fed President Lorie Logan publicly called for 'modestly higher' rates just before the July 28-29 FOMC, becoming the first Warsh-era official to break ranks. She cited persistent inflation above 2% for over five years, AI demand, and Middle East risks, dismissing the June CPI dip as temporary. Her trimmed mean analysis suggests underlying inflation is higher. This hawkish signal challenges the unity seen in June minutes and sets up a potential dissent. The SF FedViews reinforced the hawkish narrative. Strong US data and hawkish comments from Schmid and Logan are boosting the dollar and rate hike expectations. The Beige Book confirmed steady growth with sticky inflation and geopolitical risks. Bond traders aggressively unwound hike bets after softer CPI/PPI, with SOFR options showing put positions being closed; July hike odds fell to ~13% in some measures, contrasting with Logan's call. Warsh's tight-lipped testimony signals a deliberate break from Powell's communication style, increasing market uncertainty. Oil remains a wildcard with Gulf tensions and Hormuz closure risk. The balance sheet review under Warsh is a new focus, with a glacial pace signaled. Treasury yields fell as traders weighed domestic outlook and fresh Middle East strikes, while the dollar was set for a weekly drop as traders trimmed rate hike wagers. Former Atlanta Fed President Lockhart explicitly stated the next rate move will be a hike, adding weight to the hawkish narrative. New hawkish voices: Cleveland Fed's Hammack, Vice Chair Jefferson, and Logan all signaling rate hikes needed. Warsh staying quiet, consistent with anti-forward-guidance. Market pricing 15% July, 65% September. CNBC piece ties Warsh's AI comments to Fed's inflation fight, explaining how productivity gains from AI factor into rate decisions. A new piece on 'WarshGPT' highlights how Wall Street is building AI tools to decode the Fed's new sparse communication style. A MarketWatch piece reinforces the divided landscape ahead of July FOMC, balancing hike vs patience. The latest article recaps Warsh's June press conference and Trump's comments, and notes the upcoming FOMC blackout period, meaning no further official Fed communications until after the July 28-29 meeting. Today's reading added a gold article confirming 82% December hike probability (up from 73% last week) and a Business Times article reinforcing the temporary reprieve narrative.