The FOMC held rates steady with the highest number of dissents since 1992 (8-4 vote). Four members dissented: Steven Miran (will leave soon for Kevin Warsh), Beth Hammack, Neel Kashkari, and Lorie Logan. The dissents were not about the rate decision but about removing the easing bias from the statement.

The high number of dissents signals significant opposition to future rate cuts under Kevin Warsh. Three regional bank presidents will stay and oppose cuts, making it difficult for Warsh to get a majority to cut rates. This creates a divided Fed.

The dissenting members agreed with the hold but did not want the Fed to even consider easing. Does this mean the Fed will remain very hawkish?

The Fed should not be looking at rate cuts. The Fed should consider potentially increasing interest rates because they have not met their 2% inflation target even once in the last five years. Inflation is moving toward the 3-3.5% range.

What other Fed tools are available for easing if governors vote against rate cuts?

The two major instruments are the interest rate and the balance sheet. Warsh has said he will make up for lower rates by reducing the balance sheet (QT). However, every time the Fed has tried QT (Sept 2019, March 2023), it led to cash shortages and banking crises, forcing them to reverse course.

Kevin Warsh was pressed about his family's relationship with Trump (married to Jane Lauder). Is the Fed truly independent?

Warsh's independence is questionable because he completely reversed his position: he was very hawkish in 2010-2011 (criticizing QE during the crisis) but last year became dovish, conveniently aligning with Trump's position. He needs to prove his change of mind was not for career advancement.

Powell said the economy is in a good place and nobody is calling for a hike. Would conditions be there for a hike later this year?

Conditions are already there for a hike with inflation going up. The Fed is not hiking due to presidential pressure. They are also increasing the balance sheet (easing), so claiming to be hawkish is inconsistent.

Would a hike or steady rates damage the labor market? The unemployment rate is 4.3% and rising, with a 'no hiring, no firing' phase.

The labor market weakness is structural, not cyclical. AI is replacing entry-level jobs (legal, computer, medical assistants). Cutting rates by a quarter point will not create jobs. Tariffs are affecting employment more than rates.

You wrote that if Warsh delivers large front-loaded rate cuts (50bps at his first meeting), markets would tighten for him: inflation expectations rise, yield curve steepens. Do you still hold this view after the Iran war and oil spike?

Yes, I still hold that view. The 10-year yield shot up today even before the FOMC decision, because the long end is not controlled by the Fed. If Warsh cuts rates, the yield curve will steepen (short end down, long end up). Even the 2-year yield rose, showing the market doesn't believe the Fed can cut given oil and inflation.

Powell said the committee is moving toward a more neutral place and waiting to see Middle East events. What should the neutral rate be?

The neutral rate should be quite a bit higher. The current federal funds rate (3.5-3.75%) is not sufficiently restrictive given strong employment, economic growth, and a stock market doing well on earnings optimism.

The Fed has added about $200B of Treasuries to its balance sheet. Would you call this QE?

Yes, I call it QE even if the Fed says they are only buying short-term issues. Increasing the balance sheet puts cash into the system and stimulates the economy. They are doing it to prevent a cash crunch like in Sept 2019.

Is the balance sheet expansion contributing to higher inflation, even if headline numbers are driven by oil?

Yes. Even before the oil spike (before Feb 28th when the Iran war began), inflation was already rising toward 3% or higher for 5 years without meeting the 2% target. QE and too-low rates were driving inflation up even before the war.

Powell described the economy as 'quite resilient' with solid growth, consumer spending, and data center investment. Do you agree?

If the economy is so strong, why did the Fed cut rates three times in late 2025? Powell said he was concerned about employment, but that was wrong: inflation was the problem. Now he says the economy is strong, so why aren't rates being increased to bring inflation down? The Fed has sidelined its inflation mandate to focus on growth.

Atlanta Fed GDPNow is at 1.2% for 2026 Q1, down sharply. Chapter 11 filings are up 37% YoY. At what point would you call this a recession?

A technical recession is two consecutive quarters of negative GDP growth. The slowdown is coming from tariffs and the Iran war. Cutting rates cannot offset these factors, as seen in the 1970s when easy money policy after the oil shock led to both severe recession and higher inflation (stagflation).

Why hasn't the consumer collapsed yet despite high oil prices? Powell said consumer spending is still strong.

There is an income distinction. High-income and super-high-income earners are doing well because the stock market is up and they have cash for luxury goods. Lower and middle-income groups are suffering from higher prices and harder-to-get employment. Overall consumption is being pushed by high earners, masking weakness at lower levels.

Starting with bonds: do you expect the long end of the curve to continue going up?

If Warsh at his first meeting in June shows he is not cutting rates (pauses), bond yields will likely stabilize because the market expects him to be dovish. If he indicates he is ready to cut rates, the 10-year yield will go up (steepening).

The University of Michigan consumer sentiment is at an all-time historical low. Will consumer spending taper off, and would that mean weaker discretionary stock performance?

The upper end will continue to do well due to cash reserves. The Michigan sentiment index reflects the majority (lower/middle income) and I don't see it moving up. However, I expect consumer spending to remain strong overall because it is driven by high earners.

What about precious metals? Gold moved down during the start of the war, not reacting as a safe haven. What is your sentiment on gold for the rest of the year?

I have to wait to see how Warsh behaves in his first meeting. If he says he won't cut rates at all in 2026, gold may go down further because the dollar becomes a competitor (people go into Treasuries and USD assets). Gold did well in H2 2025 because of expectations of low rates indefinitely and Trump's criticism of Powell. If Warsh shows backbone and strength, gold will go down.

The S&P is at 7100, an all-time high. Do you expect AI and data center investments to continue pushing the stock market up?

I have concerns. This is similar to the 1999 dot-com boom where every company with a '.com' was seen as invincible, leading to a collapse in March 2000 and the 2001 recession. There is excess investment in data centers and AI, and much of it will be wasteful. Security selection is very important; the whole asset class will not do well, only some will.

Any particular sectors you would overweight in the S&P considering Fed policy, the Iran war, and higher oil?

Energy has more leeway to go up because oil prices will increase further. Defense-related industries should perform well if the war continues. Also look at basic value stocks and healthcare. Be very careful with technology and AI.