Earlier this week Kevin Warsh had his first meeting as Fed Chairman, and surprised many people. Warsh adamantly drove the point of price stability, while expressing the need of inflation being 2%.
These comments were an absolute neck breaker for Wall Street since Warsh, before being voted in, emphasized the need for lowering interest rates and shrinking the balance sheet. On many occasion Warsh has teased the idea of balancing the budget if the Fed governors don’t vote to lower rates.
Kevin Warsh’s recent statements hint that the Fed edges closer to a rate hike, as oppose to the cuts that were discussed by him beforehand. The news of rate hikes absolutely destroyed markets on Wednesday after the meeting.
Wall Street expects two rate cuts this year, with the first one as early as September. Raising rates would help Warsh see the 2% inflation he focused on this meeting.
Ed Yardeni believes that the Fed should keep rates stable as we’re seeing a stronger economy. Labor numbers are stronger, and oil prices are going to lower as tensions in Iran are easing.Â
Bob Michele, JP Morgan Asset Management CIO, said “The inflation data is not likely to improve,” which is why the Fed is holding rates for now. Michele highlights the opportunity in the bond market because of this, saying, “The bond market… looks pretty stable, it’s got a lot of yield in it, there’s tailwinds to the economy so corporate credit looks fine. It’s an inviting place to invest.”
Kevin Warsh shocked the market this week, rolling back on transparency, Fed rates, and inflation. This sudden change startled investors and had them questioning the character of Warsh. As data comes in we’ll see if his new perspective shifts.
