Ignore Warsh, focus on the votes

Yesterday’s Federal Reserve decision was much as expected in terms of practical change, a majority vote to maintain rates, although that was where the familiarity ended. 3 dissenting votes has become somewhat routine now, although, not long ago, such differences in the FOMC would have been treated with much more seriousness by the market. It does not top last meetings 4 dissents, all of which were to hike, just as yesterday’s split, but it still reflects a period where disunity within the Fed has become much more routine.

Above shows that the last two years for the Fed have been some of their most contentious, in terms of disharmony since the mid-2010s. Any assumption that the Governor would come out following the decision and explain the positions of those who dissented and how discussion developed was a forlorn hope. Warsh has made no qualms about his distain for forward guidance, a distain that apparently extends to press conferences, which he has considered declining all together.

Warsh explained that the increase in Treasury yields following the most recent soft employment and inflation data, combined with the resumption of war in Iran, was evidence that the market was learning to “play the ball, not the referee”. Clearly, Warsh thinks he can drag the market to a higher enlightenment by remaining silent on future policy moves and that the Fed can simply act as the rule keeper, rather than an active participant.

The rest of the press conference was the standard rhetoric of the Fed being committed to lower inflation and generalities, leaving the market little changed in its mind regarding the Fed’s future rate path. But if Warsh will not increase the level of information in the market, something else must and will fill that void.

I believe that such an aggressive and consistent vote split in favour of hikes gives sufficient reason to remain Dollar bullish, especially should the conflict in Iran continue to have the flare ups seen over the past weeks.