He believes that FED Chairman Kevin Warsh is pursuing a “two-pronged” strategy regarding monetary policy.
Accordingly, Warsh is adopting a hawkish stance in rhetoric to appease those who want interest rate hikes, while in practice he is taking a more cautious approach to buy time.
Analyst Andrew Sacher noted that weeks after Warsh’s first appearance at the Federal Open Market Committee (FOMC) meeting in June, the fundamental question being debated in the market is still: Is Warsh a hawk or a dove?
According to Sacher, this question is further highlighted by the divergence of opinion within the FOMC between raising interest rates and maintaining current levels. The upcoming Sintra meeting will offer a new opportunity for Warsh to reassess his position.
The analyst argued that Warsh acted primarily like a politician. According to Sacher, Warsh adopted a balanced tone in his statements at FOMC meetings. However, his emphasis on price stability makes his statements generally likely to be hawkish.
This approach is seen as aiming to reassure committee members who want interest rate hikes, in order to demonstrate that the Fed is acting independently of Donald Trump.
Speaking at a central bank conference in Sintra, Portugal, Warsh said that if businesses or households thought the Fed would accept inflation above 2%, “I think they’ll be disappointed. We will ensure price stability.”
On the other hand, Warsh’s actions to date suggest that, despite his hawkish rhetoric, he has been slower in implementation. His establishment of five separate working groups to examine the Fed’s core issues is seen by analysts as a move that buys time for future actions.
*This is not investment advice.
