“The Kevin Warsh Era Has Arrived With A Bang”: Wall Street Reacts To Warsh’s First FOMC

Below is a snapshot of several kneejerk reactions from some Wall street economists, strategists and traders:

Anna Wong, head economist at Bloomberg:

“The Kevin Warsh era has arrived with a bang – in the form of a dramatically shortened FOMC policy statement and a dot plot that didn’t contain any dot from the chairman himself. That marks a break from the eras of former chairs Jerome Powell, Janet Yellen, and Ben Bernanke. But the rest of the committee sent an equally strong signal: They want rate hikes. Half of the committee penciled in hikes this year, while the other half anticipates holding rates steady or cutting once. That means Warsh could play a key role in influencing the direction of rates. We no longer expect the FOMC to cut rates by 25 basis points later this year.”

Christopher Hodge, chief US economist at Natixis

“Thinks this is overall a hawkish move — rates steady, easing biased removed, no dissents. The statement, much shorter than previous statements, concludes with a commitment to delivery price stability….all in all, a hawkish statement… The statement, much shorter than previous statements, concludes with a commitment to delivery price stability…. all in all, a hawkish statement.””

Kay Haigh, Goldman Sachs Asset Management

“Today’s meeting confirms that the Fed’s recent hawkish shift was not just about higher energy prices. Despite the recent pullback in oil, half of the members of the FOMC expect rate hikes as soon as this year, reflecting strong labor market and inflation data. Our base case remains that the Fed can just about avoid hikes, but the path is narrow and there will be a high premium on the incoming inflation data.”

Ira Jersey, Bloomberg Economics

“The market is focused on the dot plot for now, with half the committee thinking there will be hikes. The bear flattening seems reasonable based on that. Those who looked for a quiet first Warsh FOMC meeting must be disappointed. Warsh’s stamp on the statement seems evident, with language moving closer to the style used before the Global Financial Crisis. The effort to make the Fed less transparent may reduce day-to-day volatility, but it risks larger jumps when the Fed’s reaction function or economic data surprise markets… “We thought Warsh might be diplomatic in taking on his post as Fed chair, and the creation of these task forces allows for shifts in the way the central bank functions, while giving everyone within the building a voice and giving him a means to express his own views while assessing the those of others.””

Brian Jacobsen, chief economic strategist at Annex Wealth Management

“Warsh turned the table over in the Eccles Building with a radical simplification of the Fed’s policy announcement. By doing this, he’s actually inviting more Fed-speak, not less. Now every Fed President will fill the gap left by the punchy policy announcement. This may backfire on Warsh.”

David Wilcox, Bloomberg Economics: 

“The committee reaffirmed its policy of maintaining ample reserves in the banking system. That’s notable, because the statement didn’t have to address it — and analysts had been thinking one way Warsh could slim down the Fed’s balance sheet would be to revert from ample reserves to scarce reserves,” Wilcox said. “Today’s statement suggests they’re not doing that — at least not right off the bat.”

Marvin Loh, State Street

“The biggest initial message from Warsh is that the commutations process is changing if we look at the wholesale changes to the policy statement. Bare bones is an understatement and for a market that has become accustomed to extensive Fed communications, we may need to read between the lines more closely with less lines available. We can now wonder how long the presser will last.”

Florian Ielpo, Lombard Odier Investment Managers

“The market moves reflect a repricing of Fed credibility and independence. Inflation is clearly back at the center of the reaction function of the central bank and someone is at its helm. This reinforces a higher-for-longer real rate environment.”

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