Flash Macro: U.S. FOMC

Fed Chair Kevin Warsh concluded his inaugural FOMC meeting and delivered his first press conference on Wednesday. The Dot Plots dismissal, the installation of task forces to review Fed procedures, and his overall comments all tilted more hawkish, which will likely create more bond market uncertainty in the near-term. Simply stated, Warsh did not deliver any new ‘legislation,’ but instead called for what we view as a ‘constitutional convention’ on the essential frameworks and work processes of the Federal Reserve. 

Looking at the big picture, we see the June Fed meeting as: 1) an important potential turning point, where the Chair seeks to attack the Regime Change that we identified coming out of COVID when the U.S. economy appeared poised to endure a higher resting heart rate for inflation (he further mentioned the Fed missing its mandate multiple times as well as a commitment to price stability); and 2) a throwback to a more Greenspan-style Fed Chair relative to Yellen and Powell, both of whom favored more market communication and direction.

In terms of where we go from here, however, Chair Warsh did buy himself some time to engineer the remake of the Fed by convening five task forces to address five key areas of Fed operation. See below for details, but the essence of these task forces is to address what the Chair views as a broad loss of confidence across markets and the general public and in the Fed’s ability to deliver price stability. Said differently, he is attuned to the key elements of our Regime Change framework, which envisions inflation running slightly but persistently above the Fed’s 2% mandate, and seeks to fundamentally ‘bend the curve’ of expectations back towards mandate consistent inflation.