Confusion Mounts Ahead of Fed Decision as Trump Says He Knows What Warsh Wants

Investors are confused about how the Federal Reserve (Fed) will decide at its meeting this week and which policies new Chairman Warsh will support. However, at least one key figure seems quite certain about the Fed chairman's thoughts.

U.S. President Trump, en route to an event in Michigan on Monday (27th), told the media, "I know what he wants to do." He said that Warsh "wants to do the right thing," but may face opposition from some members of the Fed Board of Governors.

Trump reiterated his consistent stance that "interest rates should be lowered."

The Fed's two-day decision meeting will announce the results on Wednesday, Eastern Time, and hold a chairman's press conference. Currently, traders are betting that the probability of a rate hike at this meeting is about one-third, reflecting that market uncertainty about the Fed's interest rate decision has risen to a level rarely seen in recent years.

Trump said that Warsh is being constrained by other Fed officials and criticized the Fed leadership again, saying, "You need to get some people's agreement, and they may have bad intentions."

While Trump believes Warsh is inclined to cut rates, Wall Street economists generally believe that it is still not possible to judge the policy stance of this new chairman, as Warsh has not made clear statements on key issues.

Gregory Daco, Chief Economist at EY-Parthenon, pointed out that because Warsh has not revealed the policy direction, "the July Federal Open Market Committee (FOMC) meeting is turning into an unusually confusing meeting."

Daco said that Warsh has frequently made public appearances in the past six weeks, including his first trip to Congress for a semi-annual monetary policy report, but "he actually hasn't revealed much content."

The current situation is even abnormal to the extent that the Fed's announcement that the chairman will hold a post-decision press conference as usual has become news. Since Warsh has been seeking to reform the Fed's external communication methods, there was once doubt as to whether the post-meeting press conference would still be held.

Over the past six weeks, Warsh has repeatedly emphasized his support for the Fed to maintain a 2% inflation target.

Ethan Harris, former Chief Economist at BofA Securities, said, "Warsh's repeated declaration of support for a 2% inflation target seems to have convinced financial media that he is an inflation hawk." But Harris believes that he agrees with Trump's view, Warsh actually wants to cut rates.

Harris pointed out that Warsh believes that artificial intelligence (AI) will improve productivity and curb inflation, giving the Fed room to cut interest rates. This means that Warsh's prediction of future interest rate trends is more inclined towards a low interest rate path than other Fed officials.