BofA US Watch: Warsh Hearing Offers No Case for Rate Cuts, Leans Toward Extended Hold
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BofA Securities analyzed Federal Reserve Chair nominee Kevin Warsh's Senate confirmation hearing. Warsh expressed a preference for trimmed-mean and median PCE inflation measures over traditional core PCE. As of February, 12-month trimmed-mean (2.3%) and median (2.8%) inflation rates were both lower than headline core PCE (3.0%).
Warsh supported reducing the Federal Reserve's balance sheet through quantitative tightening but emphasized a slow approach, favoring the ample reserves regime. He also advocated for the Fed holding shorter-duration Treasuries, such as 2- and 3-year notes, rather than long-term bonds. Active sales of long-term securities remain unlikely without a formal Treasury-Fed accord.
In communication strategy, Warsh opposes forward guidance to maintain flexibility, potentially reducing the Summary of Economic Projections and reverting to quarterly press conferences. Notably, Warsh presented no compelling case for near-term rate cuts. Acknowledging progress on inflation and near-full employment, his overall stance aligns with an extended pause rather than further easing. The US rates market reacted with a mildly hawkish bear flattening, though the immediate impact on the US dollar was limited as FX markets await further political and geopolitical clarity.
Key exhibits
Exhibit 1
