FOMC HogWarsh

FOMC remains on autopilot for the time being. The decision to keep the target fed funds rate at 3.5 - 3.75 percent is primarily the result of a perceived need to appear non-confrontational.

Fed Chair Warsh did his best to avoid taking a stand, or telegraphing any hints about Fed policy, by not answering questions directly. This leaves open the door for changes in rate policy in either direction.

Think about it. If the Fed raises rates and triggers a collapse in the bond market which spreads to stocks and other financial assets, as well as pushing borrowing costs higher, who gets the blame?

A surprise move to cut rates, now or later, could send the bond market into a tailspin for a different reason. Severe negative repurcussions for the U.S. dollar would translate directly to long-term interest rates and send them much higher due to the worsening effects of inflation.

As for the bond market, it did its part today by sinking to a new 20-year low. Rates on U.S. Treasury long-term bonds are now at their highest point in two decades.

If the deterioration continues, Kevin Warsh and the Fed can react more decisively than their latest action implies.

The question is whether falling bond prices and higher interest rates result from massively huge credit problems OR the ongoing U.S. dollar/inflation concerns. That is the never-ending dilemma facing the Fed, and from which there is no escape. This leads to the proverbial "kicking the can down the road" lack of decisive action, except when a financial crisis demands it.

WARSH COMMENTS ON INFLATION 

"We recognize that inflation has been running well ahead of the Fed’s long-stated inflation goal of 2 percent that’s been going on for more than five years. Persistently high prices are a burden for the American people." (Chairman Warsh’s Press Conference June 17, 2026)

The various task forces listed by Chair Walsh are, at best, a smoke screen. This is particularly true of "the one on inflation frameworks". There are no "drivers of inflation" other than the Federal Reserve. (see Inflation Is Created By The Federal Reserve)

FORWARD GUIDANCE 

 You won't hear it from Kevin Warsh, or any other Fed chair or governor. You might hear an apology (Greenspan), or an admission of guilt (Bernanke), after the fact...

   "... I discovered a flaw in the model that I perceived is the critical functioning structure that defines how the world works." (Alan Greenspan, 2008)

  “Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again” (Ben Bernanke to Milton Friedman, 2002)

 Or, you might hear words of assurance like this...

“Would I say there will never, ever be another financial crisis? You know probably that would be going too far but I do think we're much safer and I hope that it will not be in our lifetimes and I don't believe it will be.” (Janet Yellen, 2017)

Everyone is flying blindly.

CONCLUSION 

You can expect the soap opera known as FOMC policy meetings to continue with lots of fireworks. The display will be spectacular and devastating. And it cannot be cancelled due to inclement weather or extreme fire hazard.

Changing the channel won't help. The message will be the same on all stations. (Also see Stubborn Gold & Slumping Silver)