After 127 days as Federal Reserve chairman, Kevin Warsh is pushing for a regime change in monetary policy. The Fed raised rates by 25 basis points in September, the first hike since 2023, with inflation at 3.7% as measured by the Fed’s preferred PCE index, well above the 2% target maintained for over five years. Warsh is departing from the traditional neutral, accommodative, or restrictive rate framework in favor of a broader set of financial conditions indicators. Markets are pricing in a 70% probability of another hike in October, with the 2-year Treasury yield nearly one percentage point above the effective federal funds rate. The Fed’s balance sheet stands at $6.7 trillion and Warsh wants to shrink it, but resistance from his colleagues and the state of the economy are constraining his ambitions.
Source: Read the original article
