Since Kevin Warsh succeeded Jerome Powell as Fed Chairman in mid-May, the S&P 500 has gained a modest 4.2%, with its most pronounced move coming over just the last week or so. Against this backdrop, it's fair to say the market has been relatively muted since Warsh took over as Fed Chairman -- rightly so. Wall Street is accustomed to dissecting every syllable from Federal Reserve leadership, but Chairman Warsh has brought a new intensity to this habit.
As the central bank's new leader, Warsh has deliberately played coy, removing lengthy commentary and forward guidance that once filled the financial news programs. This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia.
For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue » Investors have no choice but to examine Warsh's sparse language, leaving them searching for clues about interest rates, inflation, and the Fed's priorities. Amid all the careful listening, one of Warsh's declarations stands out as the phrase that truly matters.
Let's dig into what the Fed Chairman has to say about the direction of monetary policy. In June, Warsh completed his first Federal Open Market Committee (FOMC) meeting as Fed Chairman. During this meeting, Warsh oversaw the shortest policy statement in nearly two decades, at just 130 words.
His speech ended with a blunt promise that the committee aims to deliver price stability. During subsequent speeches and interviews, Warsh has repeatedly declined to offer detailed forecasts or hypothetical paths for interest rates. Removing excess Fed speak from mainstream outlets inherently leaves investors with fewer breadcrumbs to follow, and therefore a greater need to index on each word Warsh says.
I think Warsh's most pivotal quote came on July 29 during a press conference following his second major policy meeting. After the committee voted to hold rates, Warsh addressed speculation that the Fed might be willing to tolerate inflation running above its perceived goal. Warsh didn't mince his words.
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