Warsh's first Fed meeting signals 'hawkish shift'

The clear turn for the better in US labour market data, and the inflation spike brought about by the war in Iran, have ended any Trumpian hopes that the Fed would cut rates any time soon.

During his first press conference as chair last week, Kevin Warsh made it clear that the Fed’s primary goal is ensuring price stability. The statement was also significantly watered down, removing any semblance of forward guidance - something that Warsh has been very critical of.

It is clear that absent some massive negative surprise the next movement from the Fed will be a hike, though the timing is as uncertain as ever.

AI-driven business investment seems to have taken up the baton from a more subdued consumer, but the rebound in the labour market and wealth effects from the continuing equity market rally makes it likely that the latter will rebound soon.

Futures are now almost fully pricing in the next hike as soon as September, and the strong hawkish shift in last week’s dot plot suggests that it won’t take much to tip the balance in favour of exactly that.