Warsh regime under stress: Hormuz supply shock tests no-forward-guidance; CPI/PPI soft but core sticky; fresh PCE accelerates; Hammack warns of broad inflation
Key Questions
What is stressing the Warsh regime at the Fed?
Hormuz supply shock and Houthi blockade are testing the no-forward-guidance approach, while fresh PCE shows inflation accelerating to 4.1% YoY.
How did June CPI and PPI data influence hike bets?
Soft headline CPI and cooler PPI reduced immediate hike expectations, but core remains sticky at 2.6% and PCE reinforces hawkish bias.
What did Cleveland Fed's Hammack say about inflation?
Hammack warned of broad-based inflation, projected 3.3% Core PCE, and noted businesses are asking for action while consumers are in despair.
Why are bond yields hitting two-month highs?
Traders are taking Warsh at his word on hawkish bias, with the yield curve acting as a proxy rate hike showing a 45bp spread.
What is the status of rate-cut expectations after Fed minutes?
Fed minutes challenged rate-cut expectations, with Lorie Logan explicitly calling for a hike and Warsh hinting at potential rate increases.
How does new Iran war risk affect the AI disinflation thesis?
It threatens the thesis by adding inflation risks from supply shocks, complicating the Fed's internal divide between Warsh's silence and clearer signals from others.
What does the Beige Book indicate about inflation?
It confirms easing inflation pressures, alongside a slump in pending home sales that adds to housing market weakness.
When is the next key inflation release and Warsh event?
July 30 PCE is seen as a real mover ahead of Warsh's first press conference on July 29 amid the Fed blackout period.
Hormuz closure remains stress test, amplified by Houthi blockade. June CPI soft (headline negative, core 2.6%) and PPI cooler cooled immediate hike bets, but fresh PCE print shows inflation accelerating to 4.1% YoY, reinforcing hawkish bias. Cleveland Fed's Hammack explicitly warned of broad-based inflation and projected 3.3% Core PCE, saying businesses are asking for action and consumers in despair. Bond traders are taking Warsh at his word. Yield curve acting as proxy rate hike with 45bp spread. Yields hit two-month highs. Fed minutes challenged rate-cut expectations. Warsh's testimony hinted at rate hikes, used 'family fight' metaphor. Lorie Logan explicitly called for a rate hike. New Iran war risk threatens AI-driven disinflation thesis. Internal divide highlighted by Warsh's silence vs Cook/Waller/Williams clarity. Beige Book confirms easing inflation. Pending home sales slump adds housing weakness. AI buildout poses fresh inflation threat. Warsh calls for regime change. Wall Street building 'WarshGPT'. Fed blackout period adds suspense. New articles highlight Warsh's first press conference looming, dissent math, and September as real battleground. Gold-silver ratio compression signals silver's dual engines. July 30 PCE release seen as real mover. BofA CEO warns inflation will back Fed into a corner. Central Bank Watchlist notes Warsh's reduced forward guidance may increase volatility. Fed revamps inflation tracker, signaling proactive stance. Academic research validates communication shocks as key market movers. Warsh's deliberate silence is forcing markets to parse every word from other officials; consensus no July change but dissents from Logan and Hammack. Swap market now shows 31% probability of a July hike, up from ~10%, while economist survey shows 100% hold. New analysis decodes Warsh's three key phrases ('family fight', 'first principles', 'inflation is a choice') as a communication strategy. Warsh's confirmation hearing testimony is a major event. Prediction market uncertainty on his press conference dropped to 59% but with divergence between Kalshi and Polymarket.