Stephanie Roth on Warsh's credibility and rate hike odds (with Lisa, Scarlet Fu)

Stephanie Roth

Warsh is setting up to be a very credible Fed chair. He is smart about getting consensus. He was not in favor of a hike today, but that could change with data. This was more hawkish than some expected, but a deliberate and patient approach.

Some expected him to push through rate cuts to appease the president, which would have been bad for markets. His approach is better.

Stephanie Roth

This silences critics who thought the Fed would not be independent under Warsh. He is looking at data and is not scared to hike if needed. An independent Fed is good for markets.

Pushing through cuts to appease the president would not result in a better economy or markets.

Stephanie Roth

The fact that nine FOMC members want a hike is a big surprise. Before the meeting, expectations were for 3-6 members. Now about half the committee is interested in hiking. Odds of a near-term hike have risen significantly.

This is reflected in the short end of the curve, which is up significantly.

Stephanie Roth

Warsh's comment that policy is uneven (restrictive in housing, not in financial markets) is actually hawkish. It suggests the economy is running hot relative to rates.

The initial interpretation could be dovish, but the full context (only restrictive in housing) makes it hawkish.

Stephanie Roth

Warsh's confidence that he wasn't concerned with the initial market reaction was not a mistake. He delivered a credible, balanced message and was successful.

Stephanie Roth

The Fed's commitment to 2% inflation should lower long-term inflation expectations. There are two paths to get there: inflation naturally fading, or the Fed hiking. Either way, the end goal is 2%.

This should give more confidence in long bonds.

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