When was the last time there was so much market uncertainty the night before a Fed rate announcement? Market forecast is about 70% stay, 30% increase.
I hope not mentioning maximum employment last time was not meant to send a signal.
I liked this from today's WSJ on Warsh's study groups: "Governor Christopher Waller, a former economics professor with a reputation for saying what others won’t, put Warsh on the spot, according to several people familiar with the dinner. What’s the point of all this, he asked. Tell me who you’re putting on these groups, he said, and I’ll tell you what they’ll say. There were no brilliant ideas out there that everyone had somehow missed."
I disagree, there are many brilliant ideas out there, it's just they are not the Neo Keynesian views of the Fed's PhD's so they don't believe in them. the very fact that Warsh discussed M2 is a hopeful sign they will recognize money is an important part of the equation
Waller is not denying that there are many brilliant ideas out there, he's deny that there are "brilliant ideas out there that everyone had somehow missed."
after 5+ years of categorical failure on their mission statement, whatever ideas they are using compared to those they are ignoring are clearly not that brilliant
Given that Warsh is a Trump appointee and confirmed by Trumpists it's important to remain cognizant of their political DNA. Accordingly, IMO, we should increase the sensitivity of our word 'radar' during these pressers to detect any presence of regime storms of Trump influence on the Fed and any potential subliminal threat to its independence.
Call me crazy but I remain suspicious of that notion.
IMHO, the absence of any statement on the labor market would be an ominous "tell" for the position of the committee on the dual mandate. If no such statement, the press needs to push the chairman on why it is omitted.
If the statement mentions any future policy firming (or easing), that's forward guidance. Warsh does not want that. He wants us believing that every meeting is a live one, where the Fed can potentially hike, pause, or cut.
I don't think that the Jun minutes imply the Fed would have a firming bias for the remainder of the year. In general, Fed officials were quite unsure what to do, and when they are unsure, they let the data guide their way.
Thank you Dr Sahm for your insight. The actual July statement dropped the contingency line your mockup included and committed only to delivering price stability, without saying what would trigger a move. Chairman Warsh's stated bet is that saying less makes market prices more informative, because they reflect the economy rather than the Fed's guidance. In your view, does removing the reaction function actually produce less noisy signals, or does it just shift the noise from Fed language into markets guessing at the Fed's intent?
I can't help thinking Warsh made his recommendations to the Bank of England without the need for approval from Trumpkopf. Now he's playing on a different field, with the requirement to appease Der Orange Führer.
The question of whether to hold rates steady or increase is tricky under current conditions. Even though employment isn't crashing, it is somewhat in decline, while inflation continues to increase. As the statement points out, this increase is entirely a result of the supply shock of this insane war against Iran combined with insane tariffs. Thus, with inflation and employment on divergent paths - even if only minimally - and the reality that raising rates might not actually work under current conditions, it seems the best course of action would be to wait and see what direction the economy goes.
Meanwhile, Trumpty Dumpty still wants monetary easing. I don't think he quite grasps how this works.
Short of a formal QE instead of the stealth QE currently underway, I’m not sure the Fed can do much about the ten year yield and mortgage rates . My guess is when the ten year yield approaches 6% the Fed will come in guns a blazing and buy up all long bonds and MBS .
Just like 2008 2020 .
There is no case for cutting rates as inflation continues to build steam . Capital expenditures for the AI build out will also require a buildout of the electric grid . We are talking massive amounts of natural resources and labor that is no longer cheap . Also War is inflationary. It’s as if Trump planned to create an inflationary spiral. .
Thank you this insight.
When was the last time there was so much market uncertainty the night before a Fed rate announcement? Market forecast is about 70% stay, 30% increase.
I hope not mentioning maximum employment last time was not meant to send a signal.
I liked this from today's WSJ on Warsh's study groups: "Governor Christopher Waller, a former economics professor with a reputation for saying what others won’t, put Warsh on the spot, according to several people familiar with the dinner. What’s the point of all this, he asked. Tell me who you’re putting on these groups, he said, and I’ll tell you what they’ll say. There were no brilliant ideas out there that everyone had somehow missed."
Here's bluesky thread to answer your question: https://bsky.app/profile/claudia-sahm.bsky.social/post/3mrs3dv2n222p.
I disagree, there are many brilliant ideas out there, it's just they are not the Neo Keynesian views of the Fed's PhD's so they don't believe in them. the very fact that Warsh discussed M2 is a hopeful sign they will recognize money is an important part of the equation
Waller is not denying that there are many brilliant ideas out there, he's deny that there are "brilliant ideas out there that everyone had somehow missed."
after 5+ years of categorical failure on their mission statement, whatever ideas they are using compared to those they are ignoring are clearly not that brilliant
Love this assessment, Dr Sahm.
Given that Warsh is a Trump appointee and confirmed by Trumpists it's important to remain cognizant of their political DNA. Accordingly, IMO, we should increase the sensitivity of our word 'radar' during these pressers to detect any presence of regime storms of Trump influence on the Fed and any potential subliminal threat to its independence.
Call me crazy but I remain suspicious of that notion.
IMHO, the absence of any statement on the labor market would be an ominous "tell" for the position of the committee on the dual mandate. If no such statement, the press needs to push the chairman on why it is omitted.
My Rey was to Heinz. Apologies for misplacement.
This is not Powell’s Fed. The statement will not have any forward guidance.
https://arkominaresearch.substack.com/p/fomc-the-market-is-looking-at-the
It’s not forward guidance, it’s a reaction function and it’s almost straight out of the June minutes under Warsh.
If the statement mentions any future policy firming (or easing), that's forward guidance. Warsh does not want that. He wants us believing that every meeting is a live one, where the Fed can potentially hike, pause, or cut.
I don't think that the Jun minutes imply the Fed would have a firming bias for the remainder of the year. In general, Fed officials were quite unsure what to do, and when they are unsure, they let the data guide their way.
'The labor market is broadly consistent with the maximum employment mandate.' - no way this makes it into the statement.
Your analysis was Spot On! And your FED experience conveyed to us provides great insight into the decision making process of the FOMC. Thanks!
Thank you Dr Sahm for your insight. The actual July statement dropped the contingency line your mockup included and committed only to delivering price stability, without saying what would trigger a move. Chairman Warsh's stated bet is that saying less makes market prices more informative, because they reflect the economy rather than the Fed's guidance. In your view, does removing the reaction function actually produce less noisy signals, or does it just shift the noise from Fed language into markets guessing at the Fed's intent?
I can't help thinking Warsh made his recommendations to the Bank of England without the need for approval from Trumpkopf. Now he's playing on a different field, with the requirement to appease Der Orange Führer.
The question of whether to hold rates steady or increase is tricky under current conditions. Even though employment isn't crashing, it is somewhat in decline, while inflation continues to increase. As the statement points out, this increase is entirely a result of the supply shock of this insane war against Iran combined with insane tariffs. Thus, with inflation and employment on divergent paths - even if only minimally - and the reality that raising rates might not actually work under current conditions, it seems the best course of action would be to wait and see what direction the economy goes.
Meanwhile, Trumpty Dumpty still wants monetary easing. I don't think he quite grasps how this works.
Short of a formal QE instead of the stealth QE currently underway, I’m not sure the Fed can do much about the ten year yield and mortgage rates . My guess is when the ten year yield approaches 6% the Fed will come in guns a blazing and buy up all long bonds and MBS .
Just like 2008 2020 .
There is no case for cutting rates as inflation continues to build steam . Capital expenditures for the AI build out will also require a buildout of the electric grid . We are talking massive amounts of natural resources and labor that is no longer cheap . Also War is inflationary. It’s as if Trump planned to create an inflationary spiral. .
I only own t bills ( and stocks of course ) .