Macro strategist on yield curve flattening and Fed credibility (with Romaine Bostick; Katie Greifeld)

Ball sees Warsh establishing credibility as key, leading to further yield curve flattening. He expects the market to question if there will be more than one hike. He views a more credible Fed as positive for long-run volatility, as it gets ahead of inflation rather than falling behind.

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Michael Ball 5.0

Macro strategist on yield curve flattening and Fed credibility (with Romaine Bostick; Katie Greifeld)

yields

I think we are going to see some follow through with further flattening here because there is going to be continued questioning if we get more than just maybe one hike this year.

Points out the yield curve flattening and asks Ball about his earlier anticipation of this move.

Romaine Bostick
Michael Ball

Credibility is key. Warsh established this is his Fed. Expect further flattening as the market questions if we get more than one hike, possibly two or three.

The market now has put in a hike, but let's think we get two or three now possibly. That's what some of the option markets and SOFRs are showing.
Notes that Warsh didn't seem in a rush to lower rates despite Trump pressure.

Katie Greifeld
Michael Ball

Warsh will be his own man with a deep GOP background. There's wiggle room before financial conditions tighten enough to worry the White House about midterms. The task forces show he's building consensus.

He has to come out, he has to establish that this is new, this is him, and this is all going to be different now.
Asks if we'll get more volatility now that communication might be reduced.

Romaine Bostick
Michael Ball

A more credible Fed that gets ahead of inflation is positive for long-run volatility. It avoids the risk of the Fed having to hike suddenly and unpredictably.

By getting ahead of the inflation story... it's a way to actually keep volatility longer run lower.
Notes Warsh didn't use the war as an excuse for inflation, suggesting it's more broad-based.

Katie Greifeld
Michael Ball

The real focus is on core service inflation which has come back around. Warsh wants to get ahead of it and squash the worry that inflation becomes unanchored.

If they can get ahead of this now, then it's just going to be more transitory in reality, not just in talk.

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