Warsh might flesh out his Fed strategy at Portugal confab
New Federal Reserve Chairman Kevin Warsh is under the Wall Street microscope.
New Federal Reserve Chairman Kevin Warsh isn't a stranger on Wall Street, but the mystery to investors is whether he's as committed as he sounds to stamp out U.S. inflation.
They hope to get a better idea on Wednesday when Warsh takes part in a panel discussion in Portugal with other top central bankers on the pressing economic issues of the day. It's a coming-out party of sorts on the international stage.
At his first big Fed meeting two weeks ago, the former Fed governor and Wall Street alum struck many analysts as more worried about inflation and less eager to cut interest rates than Wall Street DJIA SPX had expected.
He mentioned "price stability" eight times and lamented that inflation had been stuck above the Fed's 2% target for more than five years.
"The committee will deliver price stability," he vowed in his first public press conference after the Fed removed a so-called bias toward cutting a key short-term U.S. interest rate.
Some analysts even think Warsh's first move to alter interest rates - whenever it happens - is more likely to be an increase than a reduction.
How come? To convince Wall Street and other top officials at the Fed that his inflation-fighting credentials are real and to win over any potential skeptics inside the central bank.
"He might need to throw the hawks a bone," said Neil Dutta, head of economics at Renaissance Macro Research.
The word "hawk" in Fed lingo is associated with senior officials committed to raising rates to tamp down inflation, even if it means some damage to the economy, such as rising unemployment.
Before he took over the Fed in May, Warsh's willingness to combat inflation had been somewhat in doubt. After all, he publicly appeared to support President Donald Trump's demand for lower interest rates before Warsh was nominated to the top Fed job early in the year.
Trump had repeatedly pummeled Warsh's predecessor, Jerome Powell, for not slashing interest rates aggressively. The president has insisted that lower rates are needed to help the economy
Ironically, Warsh has long been viewed as a Fed hawk, going back to his first stint as a governor of the main Reserve Board in Washington from 2006 to 2011. Some analysts argue he's now reverting to his true nature.
Ed Yardeni, the renowned Wall Street economist and Fed watcher, has put forth a different argument.
He said that Warsh and Treasury Secretary Scott Bessent have persuaded Trump that the best way to lower borrowing costs is to talk tough on inflation and even raise the short-term fed-funds rate if necessary.
"Bessent and Warsh are working as a team," Yardeni contended in a new research note posted to his site, Yardeni Quick Takes.
How exactly would this strategy work?
Longer-term interest rates, such as mortgages and business loans, don't always decline when the Fed reduces its benchmark short-term rate. Long-term rates can and do actually rise if the Fed's inflation-fighting resolve is in doubt.
Case in point: The interest rate on the critical 10-year Treasury actually rose in January after the third of three Fed rate cuts in the second half of 2025. That's because investors were worried about sticky inflation.
Many critical types of loans, including mortgages, are tied to the 10-year Treasury yield. When it goes up, it's bad for the economy.
If Yardeni is right, the Warsh-led Fed hopes to lower long-term borrowing costs by maintaining a tough public stance on inflation and even raising the short-term fed fund rate if necessary.
The goal: To help the economy and keep Trump mollified.
Will Investors find out Warsh's true intentions on Wednesday? Perhaps he'll flesh out his views a bit more, but don't count on a major reveal.
"We are not expecting anything close to a full articulation of a monetary policy strategy but we may get a bit more insight into the way Warsh is thinking that could at the margin trim the uncertainty and volatility around his new-look Fed," analysts at Evercore ISI wrote in a note.
Indeed, Warsh was less willing than previous Fed chairmen to speculate much on the path of the economy, inflation and interest rates during his first press conference.
In his view, the Fed does more harm than good by talking too much publicly.
"I can't give any forward guidance about what we are going to do next," he said.
-Jeffry Bartash
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(END) Dow Jones Newswires
June 30, 2026 10:25 ET (14:25 GMT)
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