Warsh Anti-matter

I like thinking about non-consensus market views. Prepare for some hot takes in the next couple of issues. I am starting to think that some things that the markets are focusing on just don’t matter... or at a minimum, matter much less than the markets think. The most important things the markets were focused on this past week were Warsh and the FOMC meeting. I want to present some arguments as to why Warsh may not matter much.

But first my rates takes in the Week in News:

· A lot was made of the THREE Hawkish Fed dissenters. Given that the July meeting was about 36% priced, I think it would have been reasonable to assume something on the order of 36% dissents on a no-move. We only had 3. I don’t understand how the narrative around the dissents was “hawkish” when the two known voting hawks plus another Bank President were the only ones to dissent. It’s not as if a Governor (representing the main mass of the FOMC) dissented.

· Warsh was out saying he is considering fewer meetings per year. The knee-jerk reaction was a rally in the front end, as fewer meetings could mean fewer hikes. I am not sure this is true, as the Fed could go 50s if there are fewer meetings. Or if the Fed was intending to go 25 per quarter, they may decide to go 25 every meeting if there are 6 meetings a year. I don’t hate the idea of 4 or 6 meetings a year, as we would have a uniform amount of data in between meetings. Warsh does not strike me as the kind of guy who would make this decision unilaterally, and it’s unclear the US central bank should make a break from the other world banks without a clear benefit.

· For a couple of weeks now, I was wondering if Trump had an Iran Plan, or if he was “insane” for trying the same unsuccessful tactic repeatedly and expecting a different result. I am now moderately leaning towards the latter. I do think facilitating escorts was part of the Plan, and I do think ships continue to transit the various waterways despite the War. However, it appears Houthi involvement was not properly accounted for, unless you consider “hope” (of noninvolvement) is a plan. It probably wasn’t a coincidence that Trump stopped attacking when the Houthis escalated. Trump TACOed on his alleged massive attack on Iran. I could see attacking power plants as part of an “aiding escorts” Plan, since energy is required to detect and attack. Iran media denied progress towards a deal, but this is what they said before the ceasefire and MOU, so the actual developments next week should be interesting.