Expectations on Kevin Warsh Speech This Week & June Jobs Report

Schwab's Colin Martin argues the Fed is unlikely to shrink its balance sheet soon because doing so would lift long-term yields and worsen housing affordability. Three months of strong payrolls have shifted the labor market from stabilization to outright strength; another strong jobs report could push the Fed toward a rate hike by year-end. On credit, record June IG issuance (driven by tech/AI) has caused a modest spread pickup, but solid fundamentals support a favorable 6–12 month view on IG and HY.

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corporate credit spreads cautious up

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Asset Manager $890.00B
Colin Martin 7.5

Expectations on Kevin Warsh Speech This Week & June Jobs Report

US jobs; Fed funds; US 10y

ndx

The discussion focuses on credit markets and tech issuance, not on equity indices directly. However, the record IG issuance from tech companies and concerns about AI project payoffs suggest a cautious or neutral near-term outlook for tech-heavy indices like NDX.

yields

Colin Martin states that shrinking the balance sheet would push long-term yields higher, and that the Fed is unlikely to do so near-term because of housing concerns. However, he also notes that strong labor data could tilt the Fed hawkish, which would put upward pressure on yields. The net near-term view is cautious upward pressure on yields.

Introduces the topic of reducing the Fed's balance sheet as an alternative to rate hikes, referencing a previous guest's argument.

Sam (host)
Colin Martin

Reducing the Fed's balance sheet would be a form of tightening that could offset potential rate cuts, but near-term changes are unlikely because the administration is focused on long-term yields and housing affordability.

A smaller balance sheet would push long-term yields higher, making housing even more unaffordable. The administration (Trump, Treasury Secretary) has emphasized this concern.
Asks about the international dynamic with the ECB having hiked and the Fed potentially following, and what Kevin Warsh might signal at his upcoming appearance.

Sam (host)
Colin Martin

The key is not what Warsh says but how much he says; he has signaled a preference for shorter, less forward-guidance-heavy press conferences, so he may say very little.

At the last Fed press conference, Warsh gave a time limit and acknowledged there may not be much to say. With little changed since then, he may be even more tight-lipped.
Asks about expectations for the upcoming jobs report and whether continued labor market strength gives the Fed room to focus on inflation.

Sam (host)
Colin Martin

Three straight months of strong payrolls have shifted the labor market from stabilization to outright strength; another strong reading could tilt the Fed more hawkish and raise the likelihood of a rate hike by year-end.

The three-month moving average of nonfarm payrolls is well above the break-even rate needed to keep unemployment steady. Fed funds futures are already pricing in a hike by December.
Asks about corporate bond spreads and whether there are signs of cracks in credit, given heavy tech issuance.

Sam (host)
Colin Martin

Spreads remain low but saw a pickup last week; record June IG issuance (driven by tech/AI) creates supply-demand pressure, but strong fundamentals support a favorable 6–12 month view on IG and HY.

Investment grade issuance has hit an all-time high for June. If buyers don't absorb the supply, spreads may reset higher. However, over a longer horizon, improving credit quality and solid corporate fundamentals are supportive.

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