Source: Fortune
Summary
Incoming Fed Chairman Kevin Warsh has not committed to rate cuts, despite President Trump’s desire for lower interest rates. However, inflation is not moving in the right direction for a cut, and treasury yields have spiked, making the argument for cutting more difficult to sell. The latest consumer price inflation report came in at 3.8%, above the Fed’s 2% target, and tensions in the Middle East are adding to concerns about sticky inflation.
Our Reading
The numbers tell one story. The Fed is facing a challenging environment, with inflation above target and treasury yields spiking. Warsh’s dovish inclination will be tested, and he may need to prepare for the chance that inflation will continue to rise. The recent rise in market-based breakeven inflation rates implies that the Fed will have to shift its policy. Warsh’s statement that “inflation is a choice” may be put to the test. The Fed’s next move will be closely watched, as the market expects the trajectory to be upward in the first few years of Warsh’s tenure. The rate cut that President Trump has been angling for may not be in the cards.
Author: Evan Null
