Trump Wanted a Dove. The Market’s Pricing a Hawk.
Warsh chairs his first FOMC meeting today, and the irony is rich: Trump installed him to deliver the rate cuts Powell wouldn’t give him, and four weeks into the job he’s chairing a committee that’s more hawkish than he is. The April meeting split 8-4, the highest dissent count since 1992, and three of those four dissents came from the hawkish side: Cleveland’s Beth Hammack, Minneapolis’s Neel Kashkari, and Dallas’s Lorie Logan all objected to easing-bias language in the statement. The fourth dissent, from Governor Stephen Miran, ran the other way — he wanted a bigger cut. Warsh isn’t walking into a room of allies.
May CPI printed 4.2% year-over-year, the third straight monthly acceleration, and most of that was energy: prices up 23.5% over the past year as the Iran conflict shut down shipping through the Strait of Hormuz. That’s already unwinding. Brent has fallen into the high $70s from its conflict highs as a US-Iran deal to reopen the strait heads toward signature this week. Whether that takes the heat out of the next CPI print is an open question, but it hasn’t taken the heat out of how the market is pricing Warsh himself. Odds of at least one hike by year-end have gone from basically zero in January, when Trump first named him, to around 70% now. The man nominated as a dove is being priced as a hawk.
He’s also already changing how the Fed talks. He goes by “Chairman,” not “Chair,” the first reversal of that title in over a decade. He’s reportedly planning to skip his own dot in today’s projections, which would be unusual for a sitting chair. He’s argued for years that the dot plot manufactures false precision, and analysts expect him to lean on trimmed-mean inflation readings over the headline number that’s been driving the panic. Less guidance usually means more volatility in rates markets, and that’s coming whether or not today’s actual rate decision is a non-event. CME has the odds of a hold at 97%.
None of this changes my position, and my position has nothing to do with Warsh personally. He’s talked about cutting rates over time, shrinking the balance sheet, and rethinking how inflation gets measured. Fine. But the deficit ran $1.8 trillion last fiscal year, interest on the debt alone topped $1 trillion for the first time, and that debt rolls over at whatever rate exists when it matures. A hawkish chairman doesn’t change that math any more than a dovish one would. Eventually the Treasury’s interest bill forces easing regardless of what the committee believes about inflation in any given month. That’s fiscal dominance. It’s been my thesis for years, and nothing about today’s meeting touches it.
I’m not trading this press conference. I continue to emphasize staying long gold, silver, and uranium through whatever hawkish noise comes out of this meeting, because the structural setup hasn’t moved. Warsh can hold rates through December if he wants. The deficit doesn’t care.
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Best Regards
Graham Summers
Chief Market Strategist
Phoenix Capital Research