Kevin Warsh’s first meeting as Fed Chair was less of a rate decision and more of a philosophical manifesto. The policy rate was left unchanged, but the institution itself is being rebuilt from the studs.
The changes.
Warsh came in swinging.
- The Chairman emphatically re-anchored the Fed’s commitment to 2% inflation and acknowledged that it missed that target for five consecutive years.
- Forward guidance is finished. Bond traders are on their own; the Fed will no longer light the path.
- Five new task forces have been set up to overhaul how the Fed conducts and communicates monetary policy. Significant structural change is coming.
- The dot plot (18 submissions) now shows nine participants expecting a hike and only one expecting a cut. Notably, the Chairman did not submit a dot, a signal that the dot plot itself may be on borrowed time.
- Inflation forecasts revised sharply higher: 3.3% for 2025 and 2.5% for 2026. Hard to dismiss that as a blip.
The conclusion.
- Markets anticipated that Warsh’s appointment came with a dovish quid pro quo. If it did, he didn’t deliver today, as he passed on every opportunity to soften his tone.
- US front-end yields are 17+ bps higher on the day. The bond market has repriced to approximately 1.5 hikes by January 2027.
- The era of central bank handholding appears to be over. Welcome to doing your own homework.
