I picked this up from a conversation between two partners based in the US. One was clearly more bullish than the other, and I thought his argument was interesting. His view is that Warsh will probably try to keep everyone reasonably happy by leaving rates unchanged through the end of the year.
Well, that should satisfy Trump, who wants lower rates but has little basis for getting them right now while allowing Warsh to sound sufficiently hawkish to keep the markets comfortable.
The question is whether the bond market will buy it. He thinks the bond market has a higher IQ than the stock market, and I tend to agree.
Stocks may initially like the idea of rates staying where they are. However, if bond investors start demanding higher yields at the long end because they question Warsh’s inflation-fighting credibility, we could see the yield curve steepen. That would eventually become a problem for stocks as well.
His more bullish view is that the US economy remains in something of a Goldilocks environment. There are certainly areas of weakness but he thinks we should be looking at the bigger picture rather than trying to build a bearish case from individual data points.
For him, what matters is the aggregate data and, more importantly, the direction of travel and that remains positive. I thought it was a fair argument. Place your bets accordingly.