Episode summary
What Warsh's First Fed Meeting Tells Us About Rates Ahead
Summary
Dylan Grice argues that Warsh’s first Fed meeting signaled a return to a minimalist, Greenspan-style central bank focused first on price stability. He says Warsh came out hawkish and tight because a new Fed chairman cannot look like the president’s tool without losing credibility with the bond market.
Grice says the market had been expecting two to four cuts this year, but that a fast easing cycle was never plausible. In his view, the bigger question is whether Warsh might even raise rates, though falling energy prices and the political risk of acting before the midterms make him think an immediate hike is unlikely.
He is more focused on the Fed’s balance sheet than on the policy statement itself. Grice says shrinking the balance sheet would remove a major buyer from the bond market and push rates higher, while also reflecting a broader effort to shift financial power away from the Fed and toward the Treasury. He frames that as part of a larger struggle over debt, inflation, and the country’s ability to respond to future crises.
Key takeaways
- Dylan Grice says Warsh’s debut was deliberately hawkish because a Fed chairman who looks politically controlled loses market credibility.
- He thinks Wall Street’s expectation of two to four rate cuts was unrealistic and that the new Fed regime is prioritizing price stability over easing.
- Grice says lower energy prices reduce the urgency for a rate hike, and the midterms make an immediate increase politically unlikely.
- He argues that balance-sheet runoff is the real rates story because fewer Fed purchases would let bond yields drift higher.
- Grice warns that excessive debt limits future crisis response and could revive inflation if not constrained now.
Notable quotes
“I am happy. I like this new regime, minimalist. It feels like we're going back to an Alan Greenspan Federal Reserve”
“job number one is price stability, bringing inflation back to the Fed's 2% target. That is job number one”
“A lot of folks came into this year on Wall Street expecting two to four cuts this year, a big easing posture”
“The markets would just ignore you. They would know that you're just a tool for the president”
“If the Fed removes itself from a big buyer in the bond market, rates are just going to drift higher”
How the episode opens
Morning. This is Don here behind the market tap. It's Friday.
Today is Friday, June 19th. TGIF. First of all, I want to thank all of you guys who showed up for our webinar yesterday.
On behalf of all of us, we're immensely grateful for the opportunity to share our research with you. And I woke up this morning, I was just feeling immensely grateful that I get to do this job, that you guys watch these videos, or subscribe to our products, or even if you don't subscribe to our products, this channel apparently has gotten a bunch of people that don't even subscribe. So, we're just immensely grateful.
I just want you to know that it touches all of us. And every single day, we don't forget who we're working for. We are working for you, 100%.
And we stay very, very focused on that. The day we forget that is the day I might as well not do this anymore. Anyway, today I'd like to talk about Warsh's first meeting as Fed chairman, his first press conference.
This is kind of a big deal. First of all, the headline for me is I am happy. I like this new regime, minimalist.
It feels like we're going back to an Alan Greenspan Federal Reserve. You know, very focused on price stability, not all these other 500 other somewhat political objectives. And look, I give Jerome Powell a whole lot of credit, a whole lot of credit for how he handled COVID.
He just took a bazooka to that problem. Could have been a lot worse, and it was the first time in American history that we basically shut down the entire economy. Do you remember that?
15 days to bend the curve, when Trump shut down basically the country for a couple weeks.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- fed rates
- balance sheet policy
- bond market
- energy prices
- midterm elections
Watch the episode
Watch “What Warsh's First Fed Meeting Tells Us About Rates Ahead” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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