Warsh confirmed and sworn in as Fed chair; planning inflation measurement overhaul; hawkish pivot confirmed; FOMC minutes preview shows cautious, divided committee
Key Questions
Who is the new Fed chair and what key changes has he signaled?
Kevin Warsh was confirmed and sworn in as Fed chair, succeeding Jerome Powell. He has reinforced a hawkish, data-dependent stance while flagging an overhaul of inflation measurement and a shift away from forward guidance toward framework guidance.
What inflation measures is Warsh considering instead of CPI and PCE?
Warsh has highlighted broader indicators such as the Dallas trimmed mean at 2.4% and Truflation at 1.8%. These alternatives could strengthen the case for rate cuts compared to traditional readings.
What communication changes is the Fed implementing under Warsh?
Deutsche Bank confirms a comms overhaul with shorter statements and dot plot reform. Warsh's approach removes predictable rate path signals, which may increase market volatility.
What do FOMC minutes preview under Warsh?
The July 8 FOMC minutes release is the next major catalyst, with markets anticipating hawkish signals and potential dissent. Warsh's deliberate silence makes the minutes the primary window into his thinking.
How are markets pricing rate moves after Warsh's first presser?
Markets are now pricing a 25bp hike by year-end to 4.00%. Warsh's first FOMC presser reduced break-evens to 2.2%.
What external factors are influencing the hawkish pivot?
QNB Economics links the pivot to Middle East conflict and energy price surges pushing inflation near 4%. Falling oil prices after the Iran ceasefire may ease some pressure.
What is the new central bank consensus emerging from Sintra?
The panel confirmed no forward guidance, shrinking balance sheets, and rates as the primary tool. Warsh stands alone on AI productivity optimism while downplaying financial stability risks.
How do NFP sector trends factor into the Fed's outlook?
Growth in less cyclical sectors like healthcare and government is masking flat or declining cyclical private employment. This supports a cautious, divided committee view ahead of the minutes.
Warsh at Sintra reinforced hawkish, data-dependent stance but also flagged potential overhaul of inflation measurement. BEA announced methodology changes to PCE, expected to lower core PCE by 0.1-0.2pp by September 30, strengthening case for cuts. Waller speech today explicitly ruled out rate cuts to ease fiscal deficits, reinforcing Fed independence. In a separate speech, Waller signaled support for reduced forward guidance, aligning with the Warsh-era communication overhaul. Warsh's debut FOMC (June 16-17) delivered a clear hawkish signal: rate hold but nine officials see a hike this year; two-year yields surged 13bps; the statement was shortened and forward guidance removed. Deutsche Bank confirms comms overhaul. Hammack and Kashkari flag AI-driven inflation as hike rationale. FOMC minutes release on July 8 is the next major catalyst; Warsh's deliberate silence makes the minutes the only window into his thinking. Market anticipates hawkish signals and potential dissent.