Good morning,
Risk assets sold off across the board, except for Mag-7s (excluding Nvidia and Tesla), after a “hawkish” leaning speech by Kevin Warsh at Jackson Hole.
However, my view is that Warsh has been terribly consistent with his messaging since he became the Fed chair. It was the market that was sceptical or chose to only half-hear what he had said.
Warsh wants a smaller Fed without a monthly speech circus by its members. The constant “communication” or “guidance” not only confuses markets but could also unintentionally bind the Fed to some sort of pre-commitment before each meeting, even if a better policy choice arises.
Simply put, Warsh wants the market to stop second-guessing every Fed intention and just focus on the incoming market data itself. The market price, with trillions of dollars of volume every day, should more accurately reflect the optimal policy path than “what they think the Fed thinks on the matter”.
And yes, this is a rather dramatic shift from Powell’s strong preference to over-communicate rather than under-communicate. It may take a few meetings for the market to get used to this.
What is clear is that the Fed’s eyes are firmly on the price stability prize. There is no preference for easing until that goal is settled. And it will take a while to settle, not least with the US striking Iran again, which pushes energy prices higher.
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Disclaimer
This newsletter is intended for educational purposes only. Any information or analysis in this note does not constitute an offer to sell or a solicitation of an offer to buy any securities.
Nothing in this note is intended to be investment advice, nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.