RenMac Off-Script: Warsh Lets the Hawks Fly

You were out last week stuck at an airport.

I think that was probably just karma.

But we talked about the steps that the Fed was going to go through, starting with Warsh's first meeting.

Seems like that started to play out, maybe moved a couple of steps quicker than we thought.

But why don't you walk through what you heard this week, what it means, where you think we're going?

Well, I think what's interesting is we didn't actually hear a lot from the chairman.

You know, he did talk a lot, but he said a lot of nothing, in my opinion.

You know, Warsh has always been an antagonist to forward guidance.

And I think that's fine.

It's not like the markets need to know exactly what the Fed is going to do over the next two meetings.

But there's a difference between foregoing forward guidance and then failing to provide a framework in terms of how the Fed thinks about its policy decisions.

And I think that I would characterize Warsh as falling in the latter camp.

You know, I would just say that, you know, like I said, I mean, it's about the reaction function.

And so it just what this does is I think it kind of increases the risk of market volatility.

And that's OK.

But it also I think the bigger story is that.

there's a chance that markets don't know what the Fed thinks until the Fed actually makes the policy decision itself.

And that kind of creates the risk of a kind of abrupt kind of shift in pricing.

So, you know, I don't really view his communication strategy as a positive development thus far.

You know, I've rarely thought of the Fed as a potential left tail risk on the economy.

But you have to start thinking about that scenario.

And, you know, I would just say, you know, Warsh mentioned that he's not submitting a dot, not giving forecasts.

It's part of the forward guidance that he hates.

But guess what? Just because he doesn't like doing that doesn't mean that other people have stopped doing that.

And the market's just latched on to the next thing.