LOOK AHEAD: Week Ahead Sees FOMC Blackout, Flash PMIs, Regional Fed Services

President Trump spoke to reporters during Warsh's press conference before departing France for the White House. 

• Q: Did you see the Fed decision? They held rates.
• Trump: "It's alright, whatever."
• Q: It looks like they may need to raise rates later.
• Trump: "It could happen. It's hard to believe. It just keeps the country down. It's so... it's so... unusual. But we have a very good guy over there now, so I'm guided by what he wants to do."

Warsh also hawkishly downplayed the tradeoff between the labor market and inflation, saying "I don't believe that we have a cruel choice. I don't share the view that was expressed a few generations ago that Federal Reserve chairmen show up at a podium and say you've got to choose. And you're going to have to decide whether you're willing to tolerate higher inflation to put more people at work. I don't believe in that. What I believe is if we do our job, we can make strong growth, low prices, and strong employment mutually compatible. So what you heard from the Committee today is we've got some work to done the price stability front."

• He called policy restrictiveness "uneven", restrictive on the housing market but not for financial markets - not exactly a rallying cry for lower rates.
• And he hardly played up the transitory nature of inflation, another key argument for would-be rate cuts, replying to a question about whether energy prices were driving inflation by saying "Inflation remains elevated relative to the committee's 2% goal. In part reflecting supply shocks that have driven price increases in certain sectors, including energy. That paragraph [in the Statement] goes on to say, to be clear, the Fed will deliver price stability.   My own judgment is the committee spent quite a bit of time not just in two days, but over iterations of a couple weeks. That's what we're prepared to say about inflation. But the commitment to deliver is strong, unanimous, and unambiguous."
• He said the Fed's "important job" was to ensure that "first-order" increases in prices "don't have second and third-order effects.".
• He is clearly wasting no time in his Fed reform agenda, taking the podium to announce the creation of 5 task forces, all areas that he has stated before: 1) Communications 2) Balance Sheet 3) Use and reliance on existing data sources 4) Productivity and jobs in an era of transformation (e.g. AI) 5) The Fed's inflation frameworks.
• Warsh said that he hopes these task forces would complete their work by year-end, and at this point we would guess he would advocate an end to the Dot Plot, a shrinking of the balance sheet, reduced/eliminated regular press conferences, "alternative" economic data, and a reconsideration of the Fed's models - again, all positions he'd advocated before, though today he said he didn't want to "prejudge the outcomes".
• On a last, subtle hawkish note - on the subject of AI, which has been seen by proponents of rate cuts as a factor set to drive higher productivity/lower inflation, Warsh did little to play up that dovish angle. "With respect to AI and the growth of datacenters and infrastructure around it, we're counting the demand side. And it is no doubt showing up in GDP figures. We can be less certain when we infer the timing and extent of the growth on the supply side. It may be an intuition the supply side is going to expand but it'll take longer. I just describe it this way. There's a race between supply and demand. Milton says the only thing we know about economics is there's a supply line, and a demand line, and they ultimately cross. When they cross and what are the implications for policy? The good news for you is we have a task force for that." In turn, the implication of that and the timeline for the task forces is that the disinflationary longer-run benefits (if any) of AI won't be assessed until later in the year at the earliest, meaning that won't really factor into near-term rate cut thinking. 

Warsh's opening statement underlined concerns over inflation, reiterating the Statement in saying "Persistently high prices are a burden for the American people. But the recent past need not be prologue. I am pleased to report that members of the FOMC are unambiguous and unanimous. This Committee will deliver price stability."

• As expected he was non-committal about future meetings: "we've dropped forward guidance...we're going to listen hard to what the experts say and make our own decision. But I can't delve you any forward guidance about what we're going to do next". He added that "I think financial markets perform best when they react to incoming data. I think the financial markets work less efficiently when they ask a question: how will the Federal Reserve react to that incoming information?"
• And in probably the most dovish nod of the press conference, he predictably downplayed the significance of the more hawkish Dots: "when I saw the submissions, I noted that all the submissions were coming in with pencils, you know, those kind with the big erasers. That's to say that I think my colleagues around the table, when they submitted their dots, understand the world is changing quite quickly, and they didn't feel bound by them six weeks from now, or six days from now, in the event that their circumstances change....I didn't hear tons of conviction."
• But multiple times he seemed to play up the inflation-fighting angle, with no sign of concern over the labor market.
• Warsh said that "the Fed statement says that inflation is primarily determined by monetary policy. You bet it is. I've said for years inflation is a choice. You bet it is. And today I'm announcing that this committee unambiguously and unanimously have decided we are going to deliver on that."
• He noted "the Committee thought the labor markets were stable. There were some people around the Committee who thought that it was trending better than that. Trends matter more than data points. What's happening over three or six months matters more than any one data point, any one data release. And I'd say the jobs data has been moving in a good direction."
• And asked why the Fed didn't hike if it was worried about its inflation-fighting credibility, Warsh appeared to keep open the possibility of a July hike, saying "That judgment you expressed was not expressed by any of the 19 people around the table. We'll be meeting in six weeks. We'll take up the issue again."