Warsh's Fed Debut Tonight: Press Conference in the Spotlight
0xBroomberg
New Fed Chair Kevin Warsh delivers his first rate decision Thursday, with rates almost certain to hold at 3.50%-3.75%. But the statement's wording, the dot plot's hawkish shift, and Warsh's press-conference tone form three genuinely open variables — the real stakes tonight go far beyond the rate number itself.
Rates won't move — so what actually matters?
Holding the fed-funds rate at 3.50%-3.75% is the highest-certainty outcome. A Reuters poll of 102 economists shows over 70% expect rates unchanged through year-end.
Money markets price roughly 18 bps of cumulative tightening by year-end — implying about a 72% chance of one 25 bp hike. This means → the market isn't betting on "hold"; it's betting on what comes after.
The vote is expected to be unanimous. The sole dovish dissent last time came from former Governor Miran, now replaced by Warsh — rare political unity on standing pat.
What's changing in the statement, and why is that the clearest signal?
Goldman, BofA, and Morgan Stanley all expect the statement to drop the months-old "easing bias" language. This means → the Fed officially tells markets that rate cuts and hikes are now equally possible — no more preset direction.
The trigger: Governor Waller — previously the committee's leading dove — publicly backed the deletion in May, arguing "a cut is no more likely than a hike." Goldman reads this as a collective pivot by the dovish camp.
BofA further expects the word "additional" may be removed, or the entire forward-guidance paragraph could be struck. In plain terms = the Fed may stop telegraphing its next move altogether — which aligns neatly with Warsh's long-standing criticism of forward guidance as a tool.
What new signal will the dot plot send?
Goldman forecasts the 2026 median PCE inflation projection will jump from 2.7% to roughly 3.9%, with core PCE rising from 2.7% to about 3.3% — reflecting stacked energy-shock and AI-related memory-price effects.
The rate median is expected to hold at 3.625%, but roughly 4-5 officials will cluster at 3.875%. This means → a minority have already written a hike into their baseline for this year — the most hawkish signal of the cycle.
A key wildcard: Warsh himself may skip submitting projections. In plain terms = if his potentially lower dot is absent, the published median shifts hawkishly by default.
The press conference — where's the real risk in this debut?
BofA's base case: Warsh delivers a mildly dovish tone — framing the Iran conflict as a one-off energy shock, highlighting AI-driven productivity gains as disinflationary, while stressing "patience" and no rush to cut.
Goldman's trading desk expects Warsh to signal "neutral stance, ready to move either way". This reflects his need to unite a divided committee and avoid unnecessary volatility on his first outing.
Directional risk is tangible: if Warsh explicitly endorses a hiking path, 2-year SOFR could rise ~15 bps and the dollar gains support; if he frames inflation as a supply-side one-off, long-end yields face selling pressure.
How do the Iran deal and lower oil prices give Warsh room?
Brent crude has pulled back sharply from conflict-peak levels to around $82. Goldman's FX trading head Alan Stewart says this gives Warsh ample grounds to call recent inflation a "temporary supply-side event."
In plain terms = lower oil lets Warsh argue "the inflation spike is passing," giving the "wait and see" stance both political cover and logical backing.
But Stewart warns: if the Iran deal hits a snag or Strait of Hormuz transit disappoints, the previously cooling hike expectations could snap back fast.
How are different asset classes positioned for this meeting?
Rates: BofA recommends going long 2-year Treasury yields (currently ~4.07%, target 4.25%) and maintaining a 2s-10s flattener.
FX: The hawkish statement and dot-plot shift are largely priced in. The biggest dollar-upside risk is a press conference more hawkish than expected; if Warsh downplays inflation, the dollar faces a tactical pullback.
Gold: CTAs, ETFs, and futures are all net short gold; GLD call skew has dropped to a decade low. This means → if the Fed signals neutral-to-dovish and the Iran deal lands smoothly, gold has room for a short-squeeze rally.
Goldman frames this press conference as a "fork in the road under the same rate decision." G10 currency options price a meeting gap of roughly 45-55 bps, in the upper range of the past year. Goldman states plainly: "Trump appointed Warsh to cut rates, not raise them — and Warsh knows it."
Content is for reference only, not financial advice.