r/Economics • u/unconventionalbook • 1d ago
News Warsh says Fed is focused on taming rising prices, but gives no hint about next rate hike
https://www.nbcnews.com/business/economy/will-fed-raise-interest-rates-kevin-warsh-offer-clues-rcna60366121
u/RIP_Soulja_Slim 1d ago
What's interesting here is futures still have a pause priced in for the most part, personally I'd have thought after hot CPI/PPI we'd see the Fed leaning towards another hike. I'm still not sure what to think, and Warsh's insistence on not giving guidance is of no help.
But, I do tend to hold the opinion that the market is generally very well informed, in aggregate they're able to consume and digest far more information than I am, so their pricing indicating a hold has to be based on something.
We do still have a week until the meeting, so plenty of time for additional hints to get dropped by other board members.
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u/HowdyDiarrhea 1d ago
How often do futures misalign with what ends up actually happening? I also thought the odds felt oddly low.
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u/RIP_Soulja_Slim 1d ago
Historically? Very rarely. The Fed has actually run studies in the past using futures pricing as a gauge for how well it's communicating intent.
With Warsh's push against forward guidance that's going to be a little different, but futures were fairly accurate before the dotplot as well, so we'll see.
There has been at least three governors suggest they were in favor of a pause in the last few weeks, all of them before the last two prints though.
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u/Consistent_Laziness 1d ago
Maybe they want to be sure it wasn’t just a one off hit print, it isn’t. But a back to back hot print will likely draw a hike. We probably skip this month and digest, then hike another 25 bps next meeting is my guess.
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u/RIP_Soulja_Slim 1d ago
There’s some data lending credence to the idea of pausing - specifically you can look at Waller, Williams, or Jefferson’s comments here.
The largest single data point likely being that core PCE is trending effectively at 2% on a rolling 3 month basis.
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u/HowdyDiarrhea 1d ago
That all makes sense. Thank you.
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u/RIP_Soulja_Slim 1d ago
One of the studies if anyone's interested: https://www.newyorkfed.org/research/staff_reports/sr491.html
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u/devliegende 1d ago
I recall from the Greenspan days that there was an understanding not to make changes just before elections. Is this not what's at play here?
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u/RIP_Soulja_Slim 1d ago
Yah, IIRC historically there's very little hike activity prior to major elections. They did it in 2022, but that was 2022.
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u/Material_Key5935 1d ago
Also find this bizzarre. 13% chance of 25 bps hike per Polymarket.
How can that be after the recent cpi?
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u/RIP_Soulja_Slim 1d ago
Fed traditionally hikes a lot less in October before an election, several governors suggested there’s not sufficient urgency to warrant aggressive action but that more hikes are likely. We will likely hear from someone next week but I get it. Probably not the way I lean, but I get it.
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u/adorablefuzzykitten 20h ago
In the latter part of his speech asked the crowd if anyone wanted to buy into a time share.
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u/OfficialDuelist 1d ago
Diesel is crazy high, and big tech treats borrowing money as an inelastic demand; just the cost of doing business.
Good luck but I don't see how the FED can fix this.
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u/GuelphEastEndGhetto 1d ago
Not to mention tariffs are a tax the US consumer pays that in and of itself raises the cost of living. Interest rates won’t have any effect on tariffs.
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u/RIP_Soulja_Slim 1d ago
The Fed can't fix diesel, but the Fed absolutely can fix aggregate demand - big tech's spending spree absolutely would slow down as capital costs increase.
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u/weatherwar 1d ago
The data center fueled spending spree is naturally going to plateau - and my guess is sooner rather than later. I think demand will bite sooner than borrowing costs.
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u/Darkpriest667 1d ago
The serious problem we are in here is the lag from the oil deliveries is about 3 to 5 months depending on the part of the world it goes to. That means we are just now hitting the shortage that started in April when this idiot declared "war". Supplies have been flowing through "normally" at least the volume is normal for about 3 weeks. So we probably have 3 or 4 months of these prices IF we don't have some other thing that pops up causing an oil supply shock.
The other problem, which is already mentioned in another comment is the tariffs. I've always been for a 0 tariff policy. People act like trade deficits are the end of the world, they aren't. When you aren't a manufacturing economy you're going to have a trade deficit.
I do believe part of the plan here is to lower income levels so that manufacturing locally becomes tenable again. I don't think it will work. The Chinese are already outsourcing to Vietnam and parts of Africa for manufacturing.
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u/WeirdKittens 1d ago
Even a drop in the price of crude, which I consider highly likely, will not translate in a reduction to the price of refined products any time soon.
Unless the gulf refineries can come back online we will reach the impossible position of crude dropping rapidly while fuel costs remain elevated or increase. Crude is being produced and circulated but the refineries who actually turn it into what is translated in fuel prices are working non-stop over capacity while still not being enough to cover demand. We can't expand refineries or build new ones fast enough even it this war lasts another year. Some have even deferred much needed maintenance which can't go on for long and will come to bite them on the ass.
My million dollar prediction: oil will keep dropping on average, but refined costs will keep rising and that will bleed even more to inflation for non-petrochemicals.
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u/Fine-Comparison-2949 1d ago
Well the fix is throwing out the mandate.
The reality is we have a supply shock. Interest rates being this high is insane because it means main street can't afford anything. Rising interest rates does not produce more gas, cars, and available houses for people to live in.
You also have in almost every company complete stagnation because they live off cheap debt. Everyone I know is either getting evicted, foreclosed, or can barely make payments on credit cards.
Yes, I know the economist answer is "well people should adjust their lifestyle", but if the answer means the college educated middle class people with children in America needs to move into ghettos, then that's not going to fly with Americans.
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u/Equivalent_Gap4211 12h ago
Interest rates aren't even high. It's the size of the debt that make rates seem high. The $40 trillion national debt and all the other debt your average American has, make rates seem like they're in the stratosphere.
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u/Serious-Conversation 1d ago
Same.
This isn't really a monetary policy problem. The latest round of inflation has been driven largely, if not solely, by the energy price hikes related to the War in Iran.
Until this war ends and energy markets normalize, this is pissing in the wind.
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u/VeridionMarkets 1d ago
Rate-relevant data point: the President’s August trading report (OGE Form 278-T, received Sept 25) shows his accounts adding Treasury duration that month. They bought the iShares U.S. Treasury Bond ETF and the iShares International Treasury Bond ETF ($1M–$5M each, Aug 10) and sold the Vanguard Short-Term Bond ETF ($1M–$5M, same day) and the iShares Gold Trust ($1M–$5M, Aug 6). Amounts are ranges as filed, and the White House says outside managers run the accounts, so read it as one large private manager’s rate positioning in August, not a Fed signal. If Warsh stays focused on prices and rates go higher, longer-duration bonds are the side that loses.
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u/tjwebecon 1d ago
The only way to "tame" inflation is for the Fed to stop enabling federal budget deficits with printing-press money. As Milton Friedman famously opined: "Inflation is always and everywhere a monetary phenomenon." If you want to end endemic inflation then enact a balanced budget amendment. And what are the odds that we will ever convince congressional politicians to stop spending other peoples money?
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u/RIP_Soulja_Slim 1d ago
As Milton Friedman famously opined: "Inflation is always and everywhere a monetary phenomenon."
It's always been amusing to me that this specific quote lives on in the popular lexicon, as it's the most prominent part of monetarism that was shown to be incorrect as economics marched towards modern synthesis. Even Friedman admitted as much later in life, echoing the truth that money neutrality over time tends to be how the world works in the long run.
Friedman's win and contribution is that monetary policy can impact output in the short to intermediate term, but where he was not right was that it did this through the Philips curve mechanism that Keynes proposed, not simply through the presence of money.
A few years before his death in the mid 00s he openly said that the use of quantity of money targeting in central banking had not been a success. Yet still, somehow the phrase lives on....
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1d ago
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u/RIP_Soulja_Slim 1d ago
It really never is the people who are well versed in a given topic that reply like that...
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u/Scrandon 1d ago
Inflation was practically tamed before trump started taking an axe to our economy, so no.
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u/Alone-Supermarket-98 1d ago
At some point Warsh is going to have what alcoholics call "a moment of clarity", when he finally realizes that none of the tools at the Feds disposal have any impact on the current driving forces of inflation.
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u/african_cheetah 4h ago
Trying to tame a supply shock by raising interest rates.
Warsh may tank the economy with his stupidity if they raise rates.
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