Contrary to popular belief, market participants read signals perfectly well. Fed Chair Kevin Warsh sharply dismissed criticism that his laconic style supposedly provokes uncertainty. In his view, declining volatility in rate markets, falling Treasury yields, and easing inflation expectations are direct evidence of the effectiveness of his “less talk, more action” approach. It is precisely this tactic of “information vacuum” that has left EUR/USD stuck in limbo.
Warsh’s speech in Sintra, Portugal, was a masterclass in diplomacy: he managed to satisfy both hawks and doves. The Fed chief noted that inflation risks have eased noticeably since the last FOMC meeting. However, he made it clear that the Fed has no intention of tolerating a PCE index above the 2% target. Moreover, Warsh left the door open for a possible rate hike as early as July, which could not fail to unsettle doves.
Let me recall that even after the June meeting, I expressed the view that Warsh’s hawkish rhetoric is designed to artificially tighten financial conditions. The goal is simple — to bring down inflation expectations without taking real action. The new Fed chair is effectively shifting his workload onto traders’ shoulders: he urges them to ignore central bank statements and focus exclusively on macroeconomic data. And the numbers, as we know, are not yet screaming for tightening.
Fresh statistics only reinforce this thesis. The ISM manufacturing index, particularly its prices component, is showing clear deceleration. The situation is compounded by weak ADP private-sector employment data. The picture is unambiguous: the economy and inflation are gradually cooling, and any rate hike under such conditions would be a gross mistake.
The White House fully agrees. Chief Economic Advisor Kevin Hassett directly called potential monetary tightening a “macroeconomic mistake.” He attributes the current economic growth in the US to an AI-driven productivity boom. Notably, before his appointment as Fed chair, Kevin Warsh reportedly shared this optimism, but now his public statements sound quite different.
To be fair, the introduction of breakthrough technologies at the outset always fuels inflation, and only over time does it translate into GDP growth without pressure on consumer prices. However, Hassett’s comments make it clear that Donald Trump is beginning to lose patience. His persistent desire to see interest rates cut has not gone away.
Despite this pressure, Kevin Warsh emphasizes: the Fed was and will remain an independent institution. Moreover, the Supreme Court’s recent ruling in the Lisa Cook case has effectively freed the central bank’s hands, relieving it of the need to look over its shoulder at political considerations.
