The Kevin Warsh Era Has Begun | S3 E151 | 06-17-26

The Fed didn’t raise rates, but the meeting still packed a punch and markets felt it immediately. We break down the first decision under new Federal Reserve Chair Kevin Warsh and why a “no change” outcome can still read as hawkish when the inflation outlook shifts and the Fed changes how it communicates. If you care about interest rates, inflation, bond yields, and what gets priced into markets next, this quick update is built for you. 

Megan Horneman digs into the biggest headline beneath the headline: higher projected core inflation in the years ahead, pushing the timeline for getting back toward the Fed’s 2% inflation target. That matters because inflation expectations drive the path of monetary policy, and it helps explain why investors quickly move to price out rate cuts for the year. We also talk through the market reaction right after the statement, including why stocks dipped on the hawkish tilt and why Treasury yields rose as traders adjusted to the new rate path. 

Then we zoom in on Warsh’s clear stance against Federal Reserve overcommunication. A shorter statement and the choice not to publish dot plots from the chair signal a new approach: less forward guidance, more flexibility, and more focus on what monetary policy is actually doing. We also cover the task forces Warsh introduces, spanning communications, the Fed balance sheet, data methodology, productivity and jobs in an AI-shifting economy, and potential changes to the inflation framework, including interest in measures like trimmed PCE. 

Subscribe for more market-moving takes, share the show with a friend who follows the Fed, and leave a review so more listeners can find us. What do you think: does less Fed guidance make markets calmer or more volatile?

https://youtu.be/eLSzFf6Ttpc

Disclaimer:  material was prepared by Verdence Capital Advisors, LLC (“VCA”). VCA believes the information and data in this document were obtained from sources considered reliable and correct and cannot guarantee either their accuracy or completeness. VCA has not independently verified third-party sourced information and data. Any projections, outlooks 
or assumptions should not be construed to be indicative of the actual events which will occur. These projections, market outlooks or estimates are subject to change without notice. This material is being provided for informational purposes only and is not intended to provide, and should not be relied upon for, investment, accounting, legal, or tax advice. Past performance is not a guarantee of future results. Different types of investments involve varying degrees of risk, and there can be no assurance 
that the future performance of any specific investment, investment strategy, or product or anynon-investment related content, made reference to directly or indirectly in these materials will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. You should not assume that any 
discussion or information contained in this report serves as the receipt of, or as a substitute for, personalized investment advice from VCA. Due to various factors, including changing market conditions and/or applicable laws, the c...

Transcript

Welcome And How To Subscribe

Megan Horneman 0:00

It's welcome day for Kevin Walsh. It's Wednesday, June 17th, and this is Markets with Megan. If you like this podcast, you can subscribe to it. There's an alarm bell you can hit. Also, feel free to share this with your friends, family, neighbors, colleagues, anybody who really likes to delve into the economic data and what it means on a regular basis for moving these markets.

Rates Hold And A Hawkish Tilt

Megan Horneman 0:20

Well, today we welcomed a Kevin Warsh as the Federal Reserve Chairman, and he came out with a meeting that was what quite what quite different than we've seen in past Fed Federal Reserve chairmen. Let's break down what we got. Now it was widely expected that we would see no changes in rates, and we did not. They left rates unchanged. It was a unanimous decision, 12 to zero. We've had some dissenters on the committee in the past few meetings, so this was welcome news to see some unification here in the committee. That was also as expected. Um, the dot plots, there were actually nine officials that see at least one rate height here over the next 12 months and some pricing in two. Um, Warsh did not release dot plots, and we'll talk about that in a few minutes. But um they also did remove the easing bias, was which was expected given the recent height we've seen in inflation. The statement was much shorter than we've seen compared to past chairmen's, and we'll also discuss that in a moment. But let's talk about the biggest move on their economic projections, and that was

Inflation Forecasts Push Past 2027

Megan Horneman 1:23

on inflation. So for 2026, they're expecting core inflation around 3.3%. That's up from 2.7% at the prior meeting. For 2027, they expected at 2.5%, and that's up from 2.2% at the prior meeting. So this is definitely a hawkish tilt to this to this meeting and the statement that came out. This is um the feds, remember their target inflation rate is about 2%. So they're not talking about inflation reaching that target until at least 2027. And in fact, it's not supposed to get there even in 2028 with these initial forecasts. Now, why do we want to kind of delve in a little bit about some of these things I mentioned, like the shorter statement and the

Warsh Targets Fed Overcommunication

Megan Horneman 2:09

dot plots? It's because Kevin Warsh has been very critical about overcommunication by the Fed. It creates way too much instability in the markets. It also, with regular releases of dot plots, this has Fed officials sometimes holding on to their estimates longer than they really should have. So he wants to give these members more flexibility to change as the economic picture changes. So he did make it very clear that they can and should produce their own dot plots, but he will

New Task Forces And Framework Questions

Megan Horneman 2:38

not be. He did come out with a task force. Now, this is important because it's going to focus on five things. Communications. I mentioned their statement this time was much shorter than prior chairman's. They want to be clear, succinct, and to the point with what their comments are coming out of this meeting. There'll be a task force to look over the communications of the different Federal Reserve officials. The balance sheet. Obviously, the balance sheet is extraordinarily large. Kevin Warsh was very critical when he did serve on the Federal Reserve back during the financial crisis that the balance sheet should not be used. And we're still sitting here with a balance sheet that looks like we're in an emergency type of monetary policy situation, which we are not. He also is going to have some a task force on the data, really the methodology around what data points that we use. He's going to have one on productivity and jobs. Remember, there's a dual mandate by the Fed, price stability and full employment. Well, with the changing with AI and new technology, he wants to make sure that we're addressing the appropriately appropriate labor market measures and that we're balancing that full employment with price stability. Also, a Fed task force on inflation frameworks. So there's a lot of concern around the different measures that are being used by the Federal Reserve. And are they really showing the true inflation picture? Kevin Morris has often favored what's called a trimmed PCE inflation, which takes out a lot of noise around inflation and can sometimes smooth out those geopolitical and supply shocks like we're seeing as a result of the Iran war. However, there's a lot to be seen about this. He's hoping these task force, his goal is to have them up and running with details out by the end of this year. So we'll get more. I don't know, we'll get it at every Fed meeting because he's made it clear that these communications should be simply about monetary policy, but we'll keep our eye on it. We aren't really in favor of them changing too much on the inflation framework because as quickly as that can look in favor to a Fed where they're getting closer to their target, it can look in the opposite direction. So we just want to be careful on what monitoring how they do that and keeping our eye on that.

Market Reaction And Bond Yield Jump

Megan Horneman 4:52

Now the markets have been kind of all over the place. They were down big when the statement came out because it was much more hawkish. They've settled back in relatively unchanged. I'm not sure when I go back to my desk what we'll be seeing. Bond yields were weaker, meaning they rose because basically Fed cuts are priced completely off the table for this year. So those people that still had rate cuts priced into the market, which I don't understand why, um, it's off the table as of right now. But we'll be back with some

Wrap Up And Where To Listen

Megan Horneman 5:20

more information right now. That's all we've gotten out of the Fed with the new Federal Reserve chairman. Um, good to see some new face in there. And it's always good to get a fresh eyes on how monetary policy is conducted. If you want a history of our podcast, you can go to marketswithmegan.fm. Thank you.