Market Pulse

Research evidence excerpt

Market Pulse

In any case, this hawkish tilt comes in the context also of some "hawkish" concessions from US President Donald Trump.

He recently said that he would let Kevin Warsh "do what he wants to do," and called Warsh a "very talented guy" who will

"do a good job" - see here. Trump seemed to signal a willingness to give Warsh much more "operational slack" — a contrast

from the heavy pressure campaigns he previously directed at the Fed when it was under Jay Powell that refused to cut the

policy interest rate.

But to more definitively turn the tide of perceptions of the Fed toward hawkishness, we may have to see the Board's

Chris Waller - a dove, and an erstwhile ideological twin of Warsh - also abandon the easing bias wholeheartedly. That may

come today, with the speech that Waller will give at the Frankfurt School of Finance & Management (at 10am ET). Waller may

be incentivized also to dispel concerns over Kevin Warsh's "dovishness", which has probably been among the most important

factors (along with rising crude oil prices and the prospect of further supply-side shocks) is raising inflation expectations. Waller

has been, historically, a key driver of consensus on the Board (if not the broader FOMC), and he too may have already grown

more reluctant about the need to cut policy interest rates as inflation concerns have re-intensified (see here).

For today, we would look for two 'signals' from Waller to suggest that he is edging toward a tightening bias. First, while

Waller had focused heavily on a softening labor market earlier this year, the US's stronger-than-expected economic activity data

(and low unemployment rate) may get him to say that the US economy (and labor market) is resilient enough to handle highly

restrictive interest rates.