Will the Fed really hike by Dec? Let’s explore the fine print of Warsh’ comments

• Although there is policy space for a 25 bps rate hike—considering transitory hotter inflation and a fragile-stable, but not solid, labor market and Trump’s pressure—the Fed may be on a hawkish hold.

• Looking ahead, FOMC participants may continue hawkish jawboning without any rate action, as bond yields have already increased by ~50 bps since mid-May, when Warsh took over as Fed Chair.

• Warsh may include the trimmed mean inflation measure by regional Feds besides existing core PCE and CPI while proposing 4-6 FOMC meetings from 2027 instead of 8 in a calendar year.

On Wednesday, July 29, 2026, apart from the daily dose of Trump’s monotonous reality show on his Iran war 'fun,' the focus of the market was on the 2nd FOMC meeting under new Fed Chair Warsh, a known inflation hawk. Although the market was largely expecting a hawkish hold (including the FFR probability), there was some last-minute chatter, primarily floated by hedge fund Citadel Securities, about a potential Fed rate hike. As a part & parcel of market manipulation to grab AI stocks from another trapped competitor hedge fund at a heavy discount in a plunging market.

On July 28, stocks and gold tumbled as the USD surged on market chatter that Fed Chair Warsh may hike rates on July 29 as insurance against a Trumpflation threat despite no prior indication. As per a report, Citadel Securities expects the Fed to raise rates this week; a Wednesday 25bp hike would bolster Chair Powell’s credibility in the inflation fight, the firm’s head of macro strategy Frank Flet wrote. The move would signal that policymakers no longer rely on pre-signaling every action, could “decisively end the era of forward guidance,” and underscore the Fed's independence. “Markets may again underestimate the extent of the Fed’s hawkish shift.” 

It was later found that Citadel was intentionally floating surprise rate hike fears just days before the AI trade collapsed and forced 4x-leveraged 25-year-old hedge fund manager Leopold Aschenbrenner's Situational Awareness (facing huge margin calls from JPM and other big banks) to unload its book near the lows. Citadel then reportedly bought most of those assets at significantly lower prices and also gained instantly by July 30; most of these stocks rebounded sharply.

Leopold Aschenbrenner's hedge fund, Situational Awareness, just got forced out of all its public holdings after margin calls from Bank of America, Goldman, and JPMorgan. The fund hit $45 billion at the start of July from an initial ~$250 million. His biggest bets were SK Hynix, Nebius, SanDisk, Micron, and CoreWeave, all down more than 35% in July (MTD). His shorts on software names like Adobe went against him too. Citadel bought the bulk of what was left. 

Now, coming back to the Fed, as widely expected, the Fed held all of its key policy rates on July 29 for the 5th consecutive meeting, but with an unexpected vote of 9-3. Logan, Hamak, and Kashkari suddenly turned hawkish and voted against the decision, each favoring a 25 bp hike. The FOMC committee’s post-meeting statement was otherwise identical to June and reiterated its commitment to achieving price stability at any cost. The dissents apparently increase the challenge for new Fed Chair Warsh to remain on hold if inflation concerns intensify. President 

Trump has repeatedly called for rate cuts, including on Monday, but also pointed out Warsh has to abide by the Fed Governors’ body (12 votes), which is now political and anti-Trump, not in favor of any rate cuts during his term. Warsh, nominated by Trump earlier this year, said he would insulate monetary policy decisions from political influence; all presidents do pressure the Fed chair to cut rates for political reasons (to fund the never-ending fiscal stimulus at a cheaper rate). Most of the US presidents did it privately, while Trump is doing it publicly & openly.

SUMMARY OF FED CHAIR WARSH'S STATEMENT

• The US economy is showing "impressive resilience."

• Inflation "remains elevated" relative to the Fed's 2% target.

• The policy statement displays "just the facts" and "steers clear" of guidance.

• There is no soft inflation target; the only target is 2%.

• The Fed notes that nominal and real bond yields are materially higher since the last Fed meeting.

• Market participants are "learning to play the ball, not the referee."

• Once again, the Fed has declined to provide any official guidance.

Overall, the Fed goes for a hawkish hold—but the market was initially relieved that the Fed did not surprise with a sudden hike to prove that the new chair, Warsh, indeed walks the talk and the Fed no longer abides by the traditional forward guidance. There was some market chatter in the last few days (thanks to Citadel’s rate hike floating balloon) that the Fed may unexpectedly hike to prove Warsh's credibility.

In any way, inflation hawk and new Fed Chair Warsh, when confronted in the post-FOMC presser (Q&A) about the justification of his rate-hike narrative to bring down elevated inflation, indeed pointed out that although he didn’t hike the Fed rate, the 10Y bond yield is now hovering over 25 bps higher since mid-May, when he took charge as Fed Chair. The whole purpose of the Fed under 'vibrant/hawkish' Chair Warsh is to keep a 10-year bond yield elevated—at least 25 bps above 4.25%—when he took charge of the Fed. Although he is against open forward guidance, he & his team are doing the same indirectly—through statements/jawboning & FOMC minutes.

Warsh will not hike the rate until Dec '26—he will continue to talk like an uber hawk to keep a 10Y bond yield elevated, from 4.25% in mid-May, when he took charge of the Fed, as a 'real rate hike.' Eventually, the Fed will hold the rate till Dec '26 despite apparent hawkish rhetoric by Warsh; Trump will not allow him to hike under any circumstances, as market and bond yields are now dependent on Trump's morning moods, truths, and 24/7 media bytes (trade war to Iran war)—not Fed/Warsh or any US data. Trump will maintain his TACO (Trump Always Chickens Out) trade theme. 

The USD is now getting a safe-haven bid because of Iran-related geopolitical turmoil and the status of the US as a global superpower. This, along with hawkish jawboning by the Fed to control inflation (w/o any real rate hike) and the Fed's next potential move to shrink B/S (backdoor QT)—like a taper tantrum—the market is now concerned about the US 10Y bond yield hovering around +4.75% and may soon jump over +5.0%, a level that generally follows deep US recessions.

Bottom line:

The Fed will be in a hawkish hold stance in the rest of 2026 amid transitory higher inflation and a stable but not solid labor market. The Fed has to bring down core inflation by 100 bps and the unemployment rate by 50 bps for its dual mandate of maximum employment (~96.2%) and price stability (1.9% core inflation—PCE+CPI average). For this, the Fed has to maintain a slightly higher-than-neutral real rate w/o causing a hard landing. 

The present average 10-year bond yield is ~4.50% vs. the average core inflation of 3.00%; the US core real bond yield is now around +1.50%, almost 50 bps higher than the 1.00% neutral range (0.75-1.00-1.25), requiring no further Fed rate hike to ensure a soft landing while bringing down inflation by potentially restricting demand so that it can match the present constrained supply capacity of the economy (primarily caused by Trump policy uncertainty—from tariffs to the Iran war).

On July 29, the Fed holds the target range for:

• The Federal Funds Rate (FFR—interbank rate—SOFR) is 3.6% (median of 3.75-3.50%).

• Primary credit rate (repo rate): 3.75%

• IOER (reverse repo rate): 3.65% 

• Overnight repurchase (ONRP) agreement rate (ONRP): 3.75%

• ONRRP (Overnight Reverse Repurchase Agreement Rate) to 3.50%. 

The Fed also closed QT in December '25 and started the mini backdoor QE-5 (RMPs)—reserve management purchases at $40B/M (open-ended)—to ensure ample reserves on the balance sheet (B/S). The Fed's overall B/S size was around $6.74T on July 30 and $6.72T on July 2, 2026, vs $6.64T on December 31, 2025; i.e., the Fed's present mini-QE/RMP rate is minimal, around $1.43T/M.

Fed’s SEP for June '26: For 2026

• Real GDP Growth: 2.2% vs. actual 1.7% for 2025

• Unemployment rate: 4.3% vs. actual 4.5% for 2025

• Annual core PCE inflation: 3.0% vs. actual 3.0% for 2025

• Projected rate cuts/hikes for 2026: +25 bps hike in 2026 

Full text of Fed’s statement: July 29, 2026

The Federal Open Market Committee approved the following statement for release by a 9–3 vote:

The committee decided to maintain the target range for the federal funds rate at 3-1/2 to 3-3/4 pepercent inupport of the Federal Reserve's dual mandate. The committee is continuing its policy of maintaining ample reserves in the banking system.

Economic activity is expanding at a solid pace despite elevated uncertainty that owes, in part, to the conflict in the Middle East. Productivity growth and capital investment are strong. Job gains have kept pace with the workforce, and the unemployment rate has changed little.

Inflation remains elevated relative to the Committee's 2 percent goal, in part reflecting supply shocks that have driven price increases in certain sectors, including energy. The committee will deliver price stability.

Voting against the monetary policy action were Beth M. Hammack, Neel Kashkari, and Lorie K. Logan, who preferred to raise the target range for the federal funds rate by 1/4 percentage point at this meeting.

Implementation Note issued July 29, 2026

Decisions Regarding Monetary Policy Implementation

The Federal Reserve has made the following decisions to implement the monetary policy stance announced by the Federal Open Market Committee in its statement on July 29, 2026:

• The Board of Governors of the Federal Reserve System voted unanimously to maintain the interest rate paid on reserve balances at 3.65 percent, effective July 30, 2026.

As part of its policy decision, the Federal Open Market Committee voted to direct the Open Market Desk at the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the System Open Market Account in accordance with the following domestic policy directive:

"Effective July 30, 2026, the Federal Open Market Committee directs the Desk to:

• Undertake open market operations as necessary to maintain the federal funds rate in a target range of 3‑1/2 to 3‑3/4 percent.

• Conduct standing overnight repurchase agreement operations at a rate of 3.75 percent.

• Conduct standing overnight reverse repurchase agreement operations at an offering rate of 3.5 percent and with a per-counterparty limit of $160 billion per day.

When appropriate, increase the System Open Market Account holdings of securities through purchases of Treasury bills and, if needed, other Treasury securities with remaining maturities of 3 years or less to maintain an ample level of reserves.

Roll over at auction all principal payments from the Federal Reserve's holdings of Treasury securities. Reinvest all principal payments from the Federal Reserve's holdings of agency securities into Treasury bills."

• In a related action, the Board of Governors of the Federal Reserve System voted unanimously to approve the establishment of the primary credit rate at the existing level of 3.75 percent.

Full text of Fed Chair Warsh’s opening statement: July 29, 2026

Good day. My second FOMC committee meeting as chairman has come quickly. It’s probably too early to call it a streak, but our discussions again were collegial and constructive. I am truly lucky to work with colleagues so capable and mission-focused and so determined, like I am, to sharpen the performance of the Federal Reserve.

Today, as you know, our committee decided to vote by a 9-to-3 vote to maintain the target range for the federal funds rate at 3-1/2 to 3-3/4 percent. The committee is continuing its policy of maintaining ample reserves in the banking system. The economy is showing impressive resilience.

Even with recent shocks, the trends are positive and reveal solid growth. Job gains have kept pace with the workforce, and the unemployment rate has changed little. Inflation remains elevated relative to the Committee’s 2 percent goal. The committee remains resolute. You’ve heard this before, but we will deliver price stability.

As before, the policy statement conveys just the facts. It’s steering clear of forecasting, a choice we consider especially prudent at these uncertain times. Uncertainty, however, does not mean a lack of clarity. For some households, businesses, and market professionals, five years of high inflation have left a mistaken impression that is hard to shake: that the Fed’s implicit inflation target was somehow above 2 percent. 

Let me reiterate: There is no soft inflation target; there is no soft implicit target—not on this committee's watch. There is only a target, and it is 2 percent. Not one of my FOMC colleagues is under any illusion. We have begun a new chapter, and we understand that the five-plus years of inflation above target cannot be cured in nine weeks—or by a single month of modest price decreases.

This Fed will not waver. Our credibility rests on performing our duties and delivering on our responsibilities. Americans are right to expect that, because our nation’s prosperity depends on it. To the regulars here in the press room, today’s assessment might sound familiar. Yet there was nothing inertial about our discussions, our policy, or our strategy.

 

Two economic developments are worth highlighting. The first is a very notable change since our last meeting 42 days ago: nominal and real yields are materially higher across the Treasury curve. In fact, some of the increases in market interest rates between FOMC meetings are among the most significant in the last two decades, ranking around the top decile or so.

But if the committee didn’t change its policy rate, what happened? In the inter-meeting period, market attention centered on real data and real economic developments. Prices reacted in real time to incoming information, and the reduction in forward guidance may have been a factor. Market participants are learning to play the ball, not the referee—and market prices will continue to respond to the direction and magnitude they see fit. This is, in my view, a change for the better—and we are just getting started. 

After all, the central bank need not always and everywhere be the center of attention. I understand the desire for rolling forecasts and commentary from this committee. But for our part, we need to observe market reaction to developments, direct and unfiltered. I want to stress, of course, that those decisions by this committee matter a great deal. And where necessary and appropriate, we will not hesitate to act.

A second economic development is one that I noted at the congressional oversight hearings this month, but it’s worth repeating. The most striking feature of the economy is the strong growth of business investment. The surge in high-tech capex has been remarkable. But that does not necessarily make the Fed’s role any easier. In the A.I.-related category of high-tech equipment and software, the most recent data shows four-quarter growth rates of nearly 20 percent. This is helping to sustain the healthy momentum of manufacturing output. More generally, capex is preparing the ground for future growth. Nonetheless, the precise timing and magnitude of effects on the supply side remain hard to predict.

FOMC meetings produce policy decisions. But just as important is candid discussion of the big things that matter most. That too is a priority in this new chapter at the Fed. In our meeting, a vigorous discussion centered on four questions, which I will enumerate.

• First, we talked a lot about the implications of the past five years of high inflation on the current policy conjuncture. To echo an old phrase, has the past really passed?

• Second, my colleagues and I considered the economic shocks of recent years. Strained supply chains arising from the pandemic, military conflicts, energy-supply disruptions, substantial increases in tariff rates, and, yes, the surge in AI-related investment. These differ in their sources—do they also differ in their effects on output and employment?

• Third, we took up the related question of price increases arising from shocks. The business capex boom, for example, is driving up prices of memory and logic chips and associated A.I. infrastructure. Do those changes indicate a broader inflationary dynamic, or do we just focus on them because they are under the bright streetlight?

• Finally, we discussed monetary policy tools and strategies for achieving stable prices. If, as the Fed has long held, interest rate policy should be its primary monetary policy instrument, how much accommodation are we getting from the balance sheet?

In all of this, our work is advancing at the Fed. We are asking the right questions. And in this consequential time, we know how much depends on getting the right answers.

Of course, you’ve all arrived with questions of your own, so let’s turn to them now.

Highlights of comments made by Fed Chair Warsh on July 29, 2026, at the Fed presser/Q&A:

• Economy showing impressive resilience.

• The committee remains resolute in delivering price stability.

• The committee is steering clear of forecasting.

• There is no soft inflation target.

• 5 years of high inflation have left an impression that is hard to shake that the Fed's implicit target was above 2%.

• This Fed will not waver.

• Inflation cannot be cured in 9 weeks.

• There was nothing inertial about our discussions or strategy.

• Nominal and real Treasury yields are materially higher.

• Some of the increases between FOMC meetings are among the most significant in decades.

• Prices reacted in real time to incoming information; a reduction in guidance may have been a factor.

• Less forward guidance may have influenced market moves.

• This, in my view, is a change for the better.

• The surge in high-tech capex has been remarkable.

• Markets will continue to respond in direction and magnitude as they see fit.

• Investment is strong.

• CAPEX is preparing the ground for future growth.

• AI investment is laying the groundwork for future growth.

• We talked a lot about the past five years of high inflation.

• Considered recent economic shocks.

• Talked about price increases arising from shocks.

• The CAPEX boom is driving up prices of AI infrastructure.

• Discussed monetary policy tools and strategies.

• I've been trying to get an unfiltered message from the markets.

• We're trying not to interfere with that market signal.

• Markets are reacting to events much more directly.

• We're observing a rise in yields, trying to stay out of it.

• Interpreting markets is an imperfect business.

• The Bond market seems to be saying the economy is strong and steady.

• Even if we haven't done much, markets have done quite a bit.

• On dissenting votes within the FOMC: I asked for a good family fight and got one.

• There was a lot of agreement that I heard that we have the power to deliver stable prices.

• It was an active, robust discussion.

• The problem with data dependence is the data and the dependence.

• What matters is the trend.

• Core CPI print for June didn't influence the decision much.

• We got some encouraging inflation data, and we will be watching over the period ahead.

• Don't want to leave the impression that we are breathlessly waiting for incoming data.

• Will check in with the inflation task force in a couple of weeks.

• Rates are higher today than 42 days ago.

• In the period ahead, we have important decisions to make.

• Markets in the intervening period have a lot to decide.

• Market prices are one of many ways policy affects the economy; we will continue to watch that market information.

• Discussion showed a lot of agreement on hard questions.

• My own judgment is that this is a period of watchful thinking.

• I think there was a misimpression that we were more tolerant of a somewhat higher inflation target.

• If inflation stays high, rates could be part of the solution.

• We are looking at the extent to which these shocks are broadening inflation—a lot of our focus was on understanding underlying inflation dynamics amid shocks.

• Shocks at this juncture make the job a little tougher.

• If you were to describe this as a pause, financial markets would take the other side of that.

• The Fed decision today is the beginning of the story, not the end of it.

• Have not begun to consider what will go into the Jackson Hole speech.

• I would like to frame the big questions in Jackson Hole.

• I don't believe our mandates are at war with each other.

• We're doing pretty well as a country on full employment and doing considerably less well on prices.

• We have a reasonable sense of demand, inferring supply.

• I will let dissenters speak for themselves.

• I was comforted that markets were not responding to us, to dots, but to real-time events.

• We don't endorse any market move but watch it with keen interest.

• On Forward Guidance: Surprise is not the objective function, and surprise is not what the Fed is solving for.

• Central bankers are inclined to tighten when inflation rises.

• In terms of the reaction function, any central banker, when he sees stable employment and underlying inflation moving higher, is more inclined to tighten policy.

• Who knows what we will say in January about strategy.

• PCE is our number, and we're sticking with it.

• To achieve 2% inflation, I am looking at a broader set of inflation data than just PCE.

• It is not a perfect science, but we have a data project to separate noise from signal.

• What we made today was the farthest thing from inertia that I can imagine. Expect thinking months ahead to advance significantly.

• If I look at the Treasury curve and the dollar, what they are broadly saying is that the FOMC does own it and has the credibility to deliver.

• I selected 15 subject matter experts to tackle 5 questions; we are the decision-makers.

• I hear impatience from households and businesses; we are focused like a laser on delivering.

• If you look broadly at market prices, they are not saying all clear; they have tightened financial conditions.

• We are not going to be constrained by market pricing of FFR (Fed Funds Rate Futures).

• Markets can be a very good source of information—not a definitive source.

• Just trying to make sure that the source of information is as direct and unfiltered as possible.

• Between now and the year-end, I am committing to press conferences this year.

Full transcripts of comments made by Fed Chair Warsh on July 29, 2026, at the Fed presser/Q&A:

• On lack of proper forward guidance:

• The Fed is now more inclined to allow the market to react itself based on concurrent economic data, FOMC official statements, and the outlook for them. Warsh believes that the Fed is able to cause a higher real rate of interest (bond yields) through this process of jawboning rather than any real action. The US 10Y bond yield has been higher by around 0.25% on average since mid-May, when he took charge as Fed Chair. The higher bond yield is also a reflection of a resilient US economy, solid growth & CAPEX, and a stable labor market, along with elevated price pressure (inflation).

• Warsh outlines a deliberate shift toward a hands-off monetary policy by eliminating forward guidance, allowing financial markets to react directly to incoming economic data. Warsh believes this absence of central bank interference has resulted in a market-driven tightening of both nominal and real interest rates, which he views as validation of a solid economic output, strong productivity, and steady labor markets. 

“So I think officially it's eight weeks and four days. But I'm not counting. The message from markets is the message from markets. What I've really been trying to do, Steve, as I think you appreciate, and your colleagues appreciate, is getting an unfiltered message from markets—getting a direct message. Letting buyers and sellers meet at prices for Treasuries and for the foreign exchange value of the dollar and then trying to judge for ourselves: what does that mean about our remit? How are we doing on inflation? How are we doing on employment? 

We're trying not to interfere with that market signal. That's part of the reason why we've been somewhat sparsee with our words when we pulled back from forward guidance. So they're reacting to events, I would say, much more directly over the 42 days since we last met. This is a good thing. As I mentioned in the prepared remarks, we've seen a material tightening, not just in nominal rates but in real rates too, and we're observing it; we're trying to stay out of that because, you know, many of you might be interested in our reaction function; we're interested in the reaction of financial markets.

So, interpreting markets is an imperfect business; we central bankers, like market pros, can think these things are overdetermined. But let me offer some speculation. First, as we said in the FOMC statement that you got at two o'clock, the economy's output is solid. Capex and productivity are strong. Labor markets are solid and steady. The bond market, the Treasury market, seems to be saying that as well. If I were to try to break down and just aggregate the Treasury market signals, II would not be able to do it perfectly, but the bond market's saying many of those same things, and that's why we're seeing a tightening both in nominals and in reals, even while at some level, we haven't done much in 42 days. The markets have done quite a bit.”

• Three dissents (want to hike the rate by 0.25% as an insurance against hotter inflation): Fed/Warsh appreciates such vibrant & healthy debates & discussions (family fights) over policy & is also open to rate hikes in future meetings to deal with the sticky inflation—meaningfully higher than the 2% sacrosanct Fed target. Although the Fed may be divided over specific policy action (rate hike) for the July meeting, overall it’s quite united over the broader four core questions (issues) as mentioned by Warsh in his written speech.

• Overall, Warsh characterized the meeting's three dissents as a healthy, robust "family fight" that reflects active deliberation rather than policy inertia. He noted that June's cooler CPI print played a minimal role in the decision to hold rates steady, emphasizing that the committee focuses on broader data trends rather than single data points. 

So, I guess I shouldn't give you their best arguments. I'll give you some others. So you're right, I asked for a good family fight, and I got one. That's the purpose; that's the design feature. I come into this meeting, even this press conference, heartened by what I've experienced the last two days. Most of our discussions were on the big questions that matter to the conduct of monetary policy. We—we didn't sort of hide from them; we weren't scared of them. There was a lot more interaction between and among my colleagues; it was a real family fight. 

My view, which you've long heard, is that that's the better way to get policy right. That's our North Star. So, there was a lot of agreement (arguments) that I heard—that we have the powers, the tools, and the authority to deliver stable prices. No walking back from our responsibilities. There was a large majority support for the decision that we made in the room, but I also want to leave you, Claire, with one other impression. There was nothing inert about that discussion. It was an active, robust discussion about what's in the full range of what we can do and might want to do in the period ahead. 

You characterized it accurately: there was a disagreement about a decision today; I would say that doesn't sort of capture the full essence of the discussion. The path to central bank heaven requires delivering on our remit. These days that means delivering on price stability. I wouldn't measure that path in 42 days or any one particular meeting. And I came out of that meeting even more confident that this is the right team to win the battle against high inflation.

Well, I think, you know, the vote was 9-3. The broader discussion, to my ear, over the course of the last days showed a lot of agreement on the hard questions. The four questions I raised at the outset were about what's really happening in the economy with the shocks and absent the shocks. What are our tools and our capabilities? What's the effect on output prices? I heard a lot of commonality in the questions. Were there different takes on the answers? You bet there was. So, could people come to different conclusions? Absolutely—butmy own judgment is this is a period of watchful thinking, not watchful waiting. And I think the score on that vote was unanimous. 

• On the potential effect of higher bond yields/borrowing costs on cooling inflation for July data: The Fed is not expecting any significant move (on either side). Overall, the Fed is not too concerned about month-by-month data, but the Fed is looking for the trend. The Fed is also exploring the idea of considering both public and private data to conduct its monetary policies in the coming years. 

“So, in two words—not much—not much—I'dike to believe that the committee shares my views, which are that the historic problem with data dependence is the data and the dependence. We are not relying on any one individual piece of data as cover or as an excuse or as validation. What I care about, and what I think the committee cares about, are trends in the data. Sure, we got some encouraging inflation data; I think at the meeting 42 days ago I said something like 63 months of inflation above target. I didn't say 64, though the final calculation might be a close one. So we'll be—we'll be watching inflation data over the period ahead—but I also don't want you to leave the misimpression that we're sort of breathlessly waiting for that. 

I've called for a task force to revisit both the private and public data we use to make our decisions. That task force is outdoing their work—I'll be checking back in with them the next couple of weeks, but I wouldn't say we overly relied on—on any one piece of data, including that data which surprised some a couple of weeks ago.”

• On higher US 2Y bond yields by almost ~100 bps than the FFR, higher real borrowing costs are affecting the labor market while inflation stays high. Thus, the Fed should have also hiked today.

• Warsh sees higher bond yields as a function of effective jawboning by the Fed under his chairmanship and a reflection of a solid economy. But the Fed is also watchful and may take real rate action (a hike) in the forthcoming FOMC meetings (September-November-December ’26).

There's a lot in there, Neil. So, rates are higher today than they were 42 days ago. Markets have made decisions because we stepped back, in part, from trying to influence those. Market judgments have moved up on what nominal rates are across the Treasury curve. That doesn't mean we take them as—by dictation—but we're observing them. So I think it's a mischaracterization to say that markets haven't reacted because we didn't move today. 

Markets are reacting in real time. In the period ahead, we've got important decisions to make about the policy rate. Markets in the intervening period, I think, have quite a few decisions to make. I'll see if I can put it this way: monetary policy matters not just by what we say or even what we do; monetary policy matters by how it affects the real economy. And these prices that we see in financial markets are one of the many ways in which it affects the real economy. We'll be continuing to watch that market information and see how it responds to incoming events, and that can help inform our decision-making when we meet in seven or eight weeks.

• On the Fed’s policy tools (led by higher rates) to effectively fight persistently hotter inflation:

• Interest rates are the primary tool, while the 2% inflation target is sacrosanct—no question for any flexible inflation target regime. The target is 2.0%, not 2.5% and so on.

• The Fed is also cognizant of other policy tools like the balance sheet (WE/QT) and jawboning to ensure bond yield management (apart from any real rate action).

So, those were the discussions over the last two days. Is that the dominant remedy? If inflation continues to be elevated through the forecast period, interest rates could well be part of that solution. But I wouldn't say it's in isolation. I tried to describe in my remarks today the point that I made to the oversight committees a couple of weeks ago. I think there was a misimpression by some in financial markets, by some households and businesses, that central bankers like me set a 2 percent inflation target, but maybe we were more tolerant of a somewhat higher inflation target. In economics we'd call that the "revealed preference. "And so it might have been rational for people to think, well, their inflation target is somewhat higher. 

The—what I heard in the last two days, what I've heard in eight and a half weeks—is no. We will deliver the 2 percent inflation target. That is the Committee's definition of price stability. So one way, absent the tools that you reference, to ensure that we get there is to ensure that expectations are centered around the right number. And I think we've made some progress on that. 

I am not suggesting we're done on that. It's worth reiterating. And ultimately, the business we're in, Colby, is performance. We are going to be judged by how we perform. And that's what we intend to do with the inflation target; making clear expectations is one part of it. Making sure we demonstrate we're responsible for it and we're not blaming is another. And our policy tools, as you referenced, are the third and equally consequential part.

• On the adverse effect of consistent meaningful supply shocks on the Fed’s inflation management

• The Fed is cognizant of various supply shocks affecting US inflation/economy for the last five years (since COVID) and is discussing effectively dealing with it. But as a central bank, the Fed has only tools that can affect the demand side of the economy, and if required, the Fed may use tools like rate hikes to suppress demand to some extent so that it can match the temporarily (?) constrained supply and bring down prices (inflation).

• Warsh affirmed the central bank's commitment to the 2% inflation target as the non-negotiable definition of price stability. Addressing the effectiveness of policy tools amidst ongoing supply shocks, he emphasized that rate hikes are part of a broader three-pronged strategy that also relies on managing public expectations and institutional accountability. 

First, on the premise of your question, it was almost as if you were listening to our discussion over the last day and a half. A lot of our focus was on trying to understand and identify underlying inflation dynamics amid shocks. We take these shocks seriously. There have been a series of them that have been hitting this economy; we're not looking through them and saying, oh, they don't matter. But we're trying to understand to what extent these shocks are broadening in their effect, broadening in their impact on prices that are quite far removed from it. 

Our goal is to have growth that is broadening and inflation that is becoming more limited, more circumscribed. I'll be the first to admit the shocks make this job and this policy conjuncture a little tougher. But that's among the chief questions we've asked ourselves, and around the room people have different views on it. I tend to think in the coming months, we're going to refine that view and have better judgment, and we're going to look at market prices, trying to help inform it too.

• On his personal argument about the pause in the July meeting

• Relatively higher bond yields are proof that the market is already discounting higher rates amid hotter inflation and economic growth. Thus, the Fed is on hold today—but going forward, the Fed may act.

• Warsh rejected the characterization of a recent policy hold as a "pause," describing it instead as a rigorous review of fundamental economic questions. 

So I wouldn't characterize what we did as anything like a pause. I would characterize what we did as a rigorous review of the economic situation. I would characterize what we did as a review of the big, hard questions. And I'd characterize it as a view of what our own homework is to try to resolve those questions in the period ahead. If you were to try to force a description that this was a pause, I would say financial market prices would take the other side of that. Financial market prices in this intermeeting period didn't pause; they reacted to the inflation data in one direction and strong economic growth in the other direction. And nominal and real rates went up. Did the Fed make an explicit change in its policy rate today? No. But I think that's the beginning of the story, not the end of the story. 

• On his potential speech at the forthcoming Jackson Hole indicating any policy recalibration

• Warsh may focus more on broader Fed strategy than just potential rate action between September and December ’26. Warsh may advocate only four quarterly FOMC meetings rather than present eight meetings—most of which are meaningless. 

• Apart from inflation and employment management, the Fed will also focus on productivity and demographics, coupled with task force recommendations.

• Warsh clarified that his Jackson Hole address remains a blank slate and may focus on broad macroeconomic structural trends rather than conventional autumn policy guidance. 

I look at it like a blank piece of paper right now. I—I have not begun consideration with the incredible team here of what would go into that document. I think you characterized it correctly, historically, at least for my first tour of duty at the Fed; in more recent periods, it would be sort of a setting-up speech more often than not for what was going to be happening in the fall. I haven't made any judgments on that. But those are judgments we'll have to come to.

If I could, in the high mountain air in Jackson, Wyoming, I'd like to also frame the big questions. There is a tendency, especially with the proliferation of meetings and press conferences, to get caught up in the myopia. Did you do this by a quarter? Or do that. Ultimately, whether we deliver on price stability matters some; the decisions we make in six-, seven-, or eight-week periods matter, but they matter more. What are the big questions? 

What's really happening with productivity? What's really happening with demographics? What's really happening to the global economy amid the shocks? Haven't decided whether it's going to be a big-picture speech or whether it's going to be a more traditional setup for all the action we're going to have between September and December. I will tell you one other thing that I am doing between now and Jackson Hole: I'm checking with those task forces. 

My first principle of establishing a task force is to find the best subject matter experts anywhere in the world and put them together. Especially put them together with other people who might disagree with them. In the next couple of weeks, I'm going to be doing a check-in, giving them time to sort of think hard about their agenda, their debate, their schedule, and when they might be ready for prime time. I'll be doing a little bit of that checking, and that may or may not inform anything I have to say in Jackson.

• On the Fed’s dual mandate of maximum employment and price stability, which often goes against each other, resulting in a Fed policy dilemma

• Warsh clarified that maximum employment & price stability are mutually reinforcing mandates rather than competing objectives requiring a trade-off. He explained that monetary policy relies on balancing aggregate supply and demand—with AI-driven capital expenditures complicating productivity assessments—rather than fine-tuning aggregate demand.

• Warsh is not concerned about an apparent trade-off between the Fed’s dual mandate of maximum employment and price stability. Like Powell, Warsh also thinks that price stability is the bedrock of any economy—no modern economy can function properly without price stability. As of now, the Fed is not concerned about the US employment situation; it’s quite stable as per the available labor force, but the inflation level has been quite elevated for too long. Thus, the Fed is now emphasizing price stability rather than the employment side of the mandate.

• The Fed will also focus on US economic productivity amid growing AI and other/manufacturing CAPEX and potentially higher inflation. But if overall economic productivity growth runs higher than GDP growth, it may not result in higher inflation. 

Yeah, so, let me go back to first principles, Nick. I don't believe that either part of our mandate is generally at war with the other part. I do not believe that price stability and full employment are an either/or proposition. There have been policymakers over the last several generations who have thought that there is a strict tradeoff there. That isn't my judgment. In fact, my judgment is if and when we deliver on our remit, we're going to be satisfying both prongs. 

We're going to have price stability and full employment, and in fact, if you want to do the most harm to the labor markets, you would run a period of high inflation that's variable such that employers and businesses wouldn't really know what's going on. So I think the two parts of our mandate are equally important. We have no legislative orphans here. I've been talking mostly about price stability, because we're doing pretty well, collectively, as a country, as policymakers on the full employment side. But we're doing considerably less well on prices; that's why we describe them as elevated, and that's what's taken most of our discussion. 

In terms of transmission mechanisms of monetary policy, I think different tools work through different transmission mechanisms. The interest rates work through lending channels and credit channels, maybe confidence channels and foreign exchange. The balance sheet probably works through some other channels, like signaling and portfolio balance. We're keeping abreast of all these tools and making policy. But if the suggestion is somehow we're going to be fine-tuning aggregate demand so it catches supply, that's not my mental model. 

I don't think we're great in the fine-tuning business. We're trying to get supply and demand in broad order, but really what we're doing as we sit here today at this press conference is, I think, we've got a reasonable sense of what aggregate demand looks like in this economy. We're inferring aggregate supply. We're making a judgment about what productivity is. And in some sense, there's a race between supply and demand. And the surge in business capex in and around AI is making that calculation a little harder to judge, but in the period ahead, we're going to be trying to judge just that.

• One potential area of disagreement among FOMC participants—whether it’s inflation forecasts or something more about risks

• Overall, regarding recent policy disagreements, Warsh characterized the internal split as tactical discussions over the timing and strategy of restrictive measures rather than a dispute over inflation forecasts. 

• Rather than any particular forecast, the Fed is united on thinking strategies to bring down structurally elevated inflation—consistently above 2% targets now for over 5 years.

• Almost all FOMC participants are cognizant of the fact that TSY bond yields are higher, i.e., overall monetary conditions are restrictive to some extent. 

"Yeah, so I’m going to let the—I'll let the dissenters speak for themselves. The way I heard it over the last two days was overwhelming agreement on objectives and authority and commitment. I didn't hear anybody walking away from it. The judgment as to how best to achieve price stability was probably the question that we were trying to answer. What's the best move? What's the best strategy? What's the best way to achieve it? 

And a second question that was asked is, when do we need to make those harder calls? When do we need to make those decisions? And like I said to one of your colleagues, I was comforted that markets in the intermeeting period weren't reacting to us; they weren't reacting to dots or to speeches. They appeared more than ever to be reacting to real-time events. So, they're gauging for themselves how restrictive the Treasury curve should be. And that I think has been a useful development. We don't endorse any particular market move, but it also suggests we observe them with keen interest.”

• On any potential gap between the market's pricing of any Fed rate action and Fed communications, which can surprise the market and cause unusual volatility in financial markets 

• Warsh clarified that while surprising the financial markets is not the objective, the Fed will avoid spoon-feeding market participants or feeling constrained by prevailing market expectations. He expressed minimal concern regarding control of the narrative, noting that in stable economic conditions the fundamental reaction function remains straightforward: tightening policy when underlying inflation rises and loosening when it falls.

• The Fed is not here to surprise market participants, but at the same time, the Fed under his chair will not spoon-feed. Market participants have to make their own judgment (analysis & outlook). And the Fed's main objective (North Star) is to ensure price stability consistently, which is now its primary mandate.

Yeah, so it’s a good question. Surprise is not the objective function. Surprise is not what we're solving for. We have a clear North Star. What we're solving for is how to make the best decisions. Almost everything else should be in service to that goal. By not spoon-feeding markets, by not previewing our decisions, and by not sort of giving nudges and leans, my colleagues and I have found that, in the inter-meeting period, what we're getting are the views from a very accomplished economist. That's the internals of financial markets. Instead of just repeating or echoing what we're saying back to us, they're giving us somewhat, not perfect, their own judgment. So, surprises are not the objective. But at the same time, I would say, we didn't come into this meeting feeling constrained by the full range of alternatives we had in front of us.

• On growing divergence between some of the other FOMC participants/regional Fed Presidents/Fed governors and his personal opinion about too much Fed talk (jawboning) and clear forward guidance (like a hikeke or hold currently) 

• The Fed now wants specific dots on the SEPs by the FOMC participants, not random talk. The Fed Fed will move from an abundant to a scarce/zero forward guidance regime gradually, with an exception in financial crisis times like the 2008 GFC or 2020 COVID. 

• The Fed expects market participants to have enough insight to make Fed predictions, and the Fed will also watch market expectations closely amid a stable, but not solid, US employment situation and largely transitory hotter inflation.

• As of now, the Fed is more concerned about elevated average core inflation (~3.0%, higher by ~100 bps from the 2% target) than the unemployment rate (~4.3%, higher by ~50 bps from the 3.8% Fed target/pre-COVID average) to ensure a goldilocks economy (like in the pre-COVID days).

So, not very concerned—that's a short answer to the question. When some people who follow the Fed say, "Well, we don't want your forecast. We don't want your—we just want your reaction function. Part of me hears the—what we really want is your forecast; what we really want is your dot. 

In terms of reaction function, let me sort of disabuse people of a question that may or may not be real and be out there. Any central bank, especially a central banker, where the labor markets are more or less at equilibrium—anycentral banker, when he or she sees underlying inflation moving higher, is more inclined to tighten policy. 

Again, when you've achieved the other side of your mandate, and you see underlying inflation falling, he's more inclined to loosen policy. That's my reaction function, and I don't suspect it will cause people to not continue to pry for more, because the truth is, for a very long time, in a lot of countries, coming out of the 2008 crisis, we were in crisis mode and purposely providing a lot of information. Trying to provide a lot of assurance, trying to tell people exactly what we're going to do, offering forward guidance with clarity, as if we're tying our own hands behind our backs. Well, in crisis mode, that strikes me as a very prudent policy. 

But in more benign conditions, it strikes me as worth revisiting. But markets and market participants, and reporters, have learned to devour all that information, so I take seriously that the pullback of forward guidance requires some transition. Reform isn't easy, but our general judgment is going to help us make better decisions and, in so doing, satisfy our remit.  

• On the Fed's measure of a 2% inflation target

• For the time being, the Fed will follow the official/unofficial inflation measure of core PCE inflation but in the later stage may adopt more measures like the Trimmed Mean CPI by Cleveland/Atlanta/Dallas/NY Fed or a combination of all the measures (Core CPI + PCE + Trimmed Means + any reliable/credible private data) as may be advised by the newly appointed Fed core committee of external subject matter experts.

• Warsh clarified that Personal Consumption Expenditures (PCE) is the price index for its 2% inflation target, while personally evaluating a broader array of price data to isolate underlying trends. 

So, I'll give two answers. First, let me give the proper standard answer: the Federal Reserve every January outlines a statement of purposes and strategy, and in that strategy document, which I believe was dated January of this year, it describes a measure of PCE inflation as the objective function there. I have enough of my—so our number; we're sticking with it. Who knows, come after next January, what we might say about strategy. I suspect the task forces might have something to add. 

But I'll say this—some version of the Lucas critique, some version of Goodhart's Law in economics, should remind us that when we talk about measures of inflation or something else, and we describe those measures as being consistent with our objectives, we might make them such that they're not very good measures or very good objectives. Broadly, if you said to me, standing in front of you, I abide fully by the strategy document, we're going to deliver 2 percent inflation, and not a whisper more, but to achieve that, I'm looking at a broader set of inflation data than PCE. 

So, without sort of fully revealing my cards, I'm trying to understand, like my colleagues, what's the underlying generalized change in prices that's happening in the economy. It is not a perfect science. I might have said 42 days ago, but I've got a task force for that. But we have a data project that's trying to look and see whether we can separate the noise from the signal. And so if you were to hear a message from me, yes, I care about what the PCE prints are; I care about what the contributions are from CPI and everything else, but mylens is broader than that, even though the remit is quite narrow.

• On the Fed’s credibility under its Chair to bring down inflation and why it is not taking any action despite consistent hawkish jawboning.

• FOMC participants are actively discussing various monetary policies/strategies not only for the last 2 days but also the last 2 weeks (since the Fed blackout period) 

• Warsh believes that the Fed has instrumented higher bond yields and a higher USD, causing financial tightening across curves, helping to constrain demand and inflation to some extent.

• But the Fed is not sitting idle and is actively pursuing various monetary policies/strategies/tools to make sure consistent, stable prices and maximum inclusive employment.

• Warsh rejected the notion that the central bank is simply waiting, describing the two-day meeting as an intense, non-inertial review of monetary strategy, policy tools, and data sources. He emphasized that the Fed is in the "performance business" and that market indicators—including the Treasury curve and the dollar—demonstrate that investors believe the committee possesses the credibility to deliver on its price stability mandate. 

Yeah. So, believe it or not, this press conference is not all I've done today. We have spent an inordinate amount of time in the last two days, two weeks, looking at our monetary policy strategy. Evaluating our tools—thinking hard about the sources of data that we have at our disposal, and we wish we had. We've also thought hard about the period ahead. Among these questions, what will be answered with more clarity, certainly not certainty—so, the decision we made today, the discussion we had in that room, was the farthest thing from inertia I can imagine. 

As a point estimate at this very moment, in a choice between two alternatives, you heard the results of it, but I would tell you that this discussion was far more robust, and our thinking about how best to achieve that target is advanced, and over the coming months I expect it to be advanced much more significantly. If you were to sort of—if I were to steal a follow-up question, I won't let you—you won't be giving it up—if I were to steal a follow-up question, well, what's—what's—what's the world's think about what you've done? 

I would again reiterate, what we do isn't just about what we say; it's not just about what we do; we're in the performance business. And so—so, if I look at the Treasury curve, if I look at the dollar, if I look at a lot of things that are internal inside of financial markets, 

I think what they're broadly saying is that this Committee does own it and has the credibility to deliver it, and they believe, like I do, that we will. But I don't want to leave you with a misimpression—we've got no magic wand. This isn't something that we're going to be able to carry out in days or weeks. But we're going to deliver on the responsibility that Congress gave us, and today's meeting and the preparation for today's meeting were important steps towards that destination.

• On the formation of various task force committees and their credibilities

• There are 5 such committees led by 15 highly credible, skilled, experienced, and known subject matter experts (SMEs) having divergent views. Warsh expects ‘family fights’ (internal healthy debates & discussions) in these committees too. But it’s the discretion of the Fed/FOMC to accept their final recommendations in various subjects, from inflation measurement to balance sheet sizes, data collection, and other regulations/policy strategies.

• Warsh also defended the appointment of Marc Andreessen to the AI data task force, stating that the public can trust the committee's independence because the Federal Reserve remains the sole decision-maker. He emphasized that the 15 vetted experts were chosen for their deep expertise and diverse views to spark their own internal debates, ensuring outside perspectives inform but do not dictate monetary policy decisions.

• Key Points of Warsh's Task Force Defense

• Ultimate Decision Authority: Outside task forces merely provide insights; the FOMC and the Board of Governors retain total control over final policy decisions.

• Encouraging Internal Friction: Members were deliberately paired with peers who hold opposing viewpoints to replicate the Fed's own "family fight" dynamic.

• Vetting and Credentials: Warsh asserted personal, long-term familiarity with the 15 selected experts, expressing complete confidence in their credentials and integrity.

Yeah, so I selected 15 incredible subject matter experts to tackle five of the most important questions that, if we get the answers right, we're going to do a far better job in delivering. And if we get the answers wrong, we have a problem. The comfort that I can give you and your listeners is that we're the decision makers. The Chairman of the Board of the Federal Reserve and the members of the Board and the FOM will be the consumers of the outputs from five different committees. 

The judgments we're making will be informed by, but not at all determined by, these outside groups. My theory of the case in establishing the task forces was to pick people with extraordinary talent, depth of expertise, and a divergence of views inside every committee. So they too can have a family fight. This is not outsourcing to people that aren't known and haven't been vetted. This is seeing whether new ideas can catalyze a broader, better, more informed discussion inside the room. 

And I'm very confident that we're going to be able to do that. I am impressed by the credentials of these 15 people. And full disclosure, I've known almost all of them for a very long time, and I think they're going to give their best views on the subject, but ultimately, these are decisions we're going to make, and we're accountable to our oversight committees and to the remit Congress gave us to deliver.

• On the Fed's inflation management strategy under his Chair amid no inflation tolerance policy       

• Warsh basically asked the market to be a little more patient, as 63 months of high inflation (under his predecessor) will not go away in merely 2-3 months (since mid-May, when Warsh took over as Fed Chair) unless there is a ‘magic wand.''

• Warsh now has greater confidence than 2 months ago that his team (FOMC Participants) will ensure durable price stability through effective monetary policy-making.

• Warsh criticized public and media impatience over 63 months of higher inflation management by a 2-month-old Fed under his leadership. He noted that while his leadership team has only been in place for eight and a half weeks, they are completely focused on achieving the 2% price stability target. 

• Warsh emphasized that the Fed will not be constrained by market expectations pricing in a near-100% chance of a September rate hike, reiterating that financial markets serve as a valuable source of unfiltered data rather than a directive for monetary policy decisions. 

• Under Warsh, the Fed will not be blinded by the market expectations of FFR (Fed Funds Futures rate); the Fed may be opposite to the FFR; the Fed will certainly respect the market or FFR, but not in an obligation to follow it blindly. 

• Key Points of Warsh's Defense on Inflation Strategy

• Acknowledging Public Impatience: Warsh validated the frustration of households and businesses facing multi-year inflation but stated that structural price stability cannot be restored instantly without a "magic wand."

• Market-Driven Tightening as Support: Warsh noted that the recent tightening of financial conditions by the markets provides the FOMC room to thoroughly analyze incoming economic data.

• Independence from Market Pricing: Despite high market certainty for an autumn rate hike, Warsh explicitly stated that the Fed will not let market expectations dictate its policy path.

• Preserving Clean Data Signals: By withholding rolling commentary and forward guidance, the Fed aims to keep market pricing as an unbiased indicator of the real economy rather than an echo of central bank rhetoric.

I hear from you what I hear more broadly from households and businesses: impatience. Deliver it already. This is not an—this is not an excuse; this is a fact: this FOMC, this Board, has been in business for eight and a half weeks. This—the—the patience, the impatience that households and businesses feel, has been going on for 63 months. We are on the job; we will deliver; we are focused like a laser on making sure we can do it. 

But the suggestion that we're going to be able to do it with our magic wand is one I want to disabuse you and everyone else of. But the discussion for the last two days gave me more confidence than i had eight and a half weeks ago, this team that we have at the FOMC, the support that we have from Board staff, and the new hard questions we're asking—we need to resolve those, and as we resolve those questions and get smarter on those, we're going to deliver on the remit. You don't have to take my word for it. 

If you look broadly at market prices, they are certainly not saying all clear, but they are working in concert to keep us on our toes, and they have tightened financial conditions in this intermeeting period, and—and that has given us a—that has provided us some—some—comfort that—we've got the ability and capability to deliver.

So, we're not going to be constrained by market prices. We're not going to be constrained or take verbatim from what the market's doing. But I think it's useful—to understand that markets can be a very good source of information, not a determinative source, not a perfect source, but if we're trying to land the plane and deliver 2 percent inflation, and we take a very useful source of information and we get it all fogged up by giving it our own forecast, by providing rolling commentary, I can assure you that we're going to have less information, less ability to land the plane successfully, and deliver price stability. 

We're just trying to make sure that—that source of information is as direct and unfiltered as possible. It isn't to the exclusion of data sources and opinions and other surveys, but if you're hearing from me, we wanted to make sure we're getting a better source of information; I think in a relatively short time, we are.

• On Fed’s communication (including post-meeting presser) strategy  

• Fed (Warsh) may divulge more clarity about it in the coming days, likely to be effective from 2027 (say 4-QTR FOMC meetings in a year with SEPs instead of 8s)

• Warsh again assured about FOMC’s commitments and highlighted internal intense ‘family fights’ (healthy debates & discussions) to ensure the Fed’s Congressional dual mandate of maximum employment and price stability—the core objective.

• Warsh also urged the presser/market participants to take note of FOMC participants’ internal debate rather than voting divisions.

• Warsh stated that the primary news for average households is that the central bank is fully committed and equipped to deliver on its price stability mandate, backed by an active, professional debate within a reforming committee. He confirmed that the Fed will fulfill its scheduled press conferences for the remainder of the year and framed the 9–3 vote split not as a fractured institution, but as a constructive, curious group of professionals eager to modernize monetary policy. 

So, apparently it was news that I had a press conference. Let me just see if I can offer some clarity on that. Between now and year-end, my predecessors and the Federal Reserve committed to press conferences this year; I'm committing to press conferences this year. That might be news to the people in this room and of no particular interest to your viewers and your—and—and your readers back at home. 

What I can offer as assurance is that the Fed's on the case. That this Fed Chairman feels better about this Board and this Committee's ability to deliver than I did when I showed up here on the first day. And I showed up pretty confident. I've been heartened by the reception that I received. No doubt in some of your commentaries today—you'll talk about a divided Federal Reserve, but that's not the feeling I felt the last couple of days, and the couple of days before it. 

What I felt was a group of professionals, all with different perspectives, different views, and different judgments, but eager to roll up their sleeves and have a family fight, and eager to reform the way in which the Fed does policy. A keenness and open-mindedness and curiosity about that. So we have a far better chance to deliver on the remit that Congress gave us, and so I want to leave you with the optimism of a new central banker that we're committed as ever to deliver and to offer an assurance we will----Thank you all very much.

Key Themes from Warsh's Closing Remarks

• Commitment to Scheduled Briefings: Warsh clarified that he will honor all previously scheduled press conferences for the rest of the year, providing regular access despite his preference for streamlined communications.

• Optimism over Division: While the media may focus on a divided 9–3 vote, Warsh interpreted the internal friction as a positive sign of a team actively rolling up their sleeves to tackle sticky inflation.

• A Reforming Institution: He highlighted a collective "open-mindedness and curiosity" among committee members regarding structural reforms to how the Fed processes data and conducts policy.

Overall highlights of Fed Chair Warsh’s FOMC Presser: July 29, 2026

• A Good Family Fight (healthy internal debates among FOMC participants/voters): Warsh explicitly leaned into the division, telling reporters, "I asked for a good family fight, and I got one," framing the 9–3 split as a constructive debate over how to manage multi-year inflation pressures.

• Zero Forward Guidance: Warsh forcefully doubled down on eliminating forward guidance, noting that the Fed intends to be highly conservative with such definitive forward guidance. He emphasized that the central bank wants markets to react directly to incoming economic data rather than trying to guess the Fed's next move. Warsh reiterated that there should always be some element of ‘uncertainty’ in the Fed’s next action, rather than too much certainty, and that every meeting will be ‘live’ (rather than casual). This element of Fed policy uncertainty may be an effective passive policy tool to manage market pricing and bond yields, helping to achieve the Fed’s dual mandate of maximum employment and price stability consistently.

• No "Soft" Targets: Warsh also reiterated a hawkish stance on price stability, stating there is "no soft inflation target" and indicating that the Fed will not hesitate to hike rates later in 2026 if price pressures continue climbing. Warsh emphasized the Fed’s inflation target is 2.0, or 1.9%, rather than 2.3 or 2.5%. There will be no change of goalposts under any circumstances. But the Fed is open to redefining the underlying core inflation measurement by relying not only on PCE/core PCE and total CPI/Core CPI but also on some other measures of less volatile Trimmed Mean CPI measures by various regional Feds and also some private inflation data. The Fed is waiting for the Task Force report/recommendations.

• Market-Driven Tightening: Warsh pointed out that the recent run-up in market-driven bond yields is effectively doing the Fed's tightening work for it, which provided the committee some comfort to hold steady at this meeting. Warsh virtually tried to take the entire credit for higher bond yields since mid-May ’26 as a result of hawkish Fed jawboning under his leadership (rather than other factors like the lingering Iran war, elevated oil, and the inevitable issuance of additional debt by the US Treasury to fund Trump’s Iran war ‘fun’).

Typical Market Reactions: Hawkish Hold

Overall, it’s again a hawkish hold despite the initial ‘relief’ of no surprise rate hikes (as floated intentionally by a hedge fund—Citadel just a day ago of the FOMC meeting for vested interest). Overall, the FOMC statement, 9-3 votes to hold, and Warsh's ‘tough talks,’ along with a lack of explicit forward guidance that no such rate hike will occur in Sep-Dec ’26, triggered sharp volatility across Wall Street.  

• Equities Plunged: The Dow Jones Industrial Average suffered its worst day in over a year, closing down more than 1,100 points (~1.6%). The S&P 500 lost 0.6%, and the Nasdaq Composite slid 0.5%.

• Treasury/Bond Yields Spiked: Long-term bond yields shot up over hotter inflation concerns. The 30-year Treasury yield surged above 5.22%, printing its highest intraday level since the 2007 GFC days.

• Yield Curve Flattened: While long-term yields advanced, shorter-term 2-year yields actually dipped slightly to 4.236%, reflecting sharp market confusion over the Fed's true underlying reaction function amid Warsh’s epic suspense.

Apart from any rate action, the market will also focus on Warsh’s potential actions/decisions on various structural issues, including:

• Number of FOMC meetings: Warsh may prescribe/indicate 4-6 FOMC meetings in a calendar year from the present 8 (to be effective from 2028) in his forthcoming Jackson Hole speech.

• Inflation targeting mechanism overhaul through a mix of inflation measures, including core CPI, PCE, Trimmed Means, and also some private data. Warsh may indicate these modifications through the Fed’s Jan '27 strategy document (subject to Congressional approval?)

• Employment data: Apart from BLS data overhauling, Warsh may also include some private data officially.

• Warsh may also justify higher economic growth along with higher productivity, resulting in lower/stable inflation and higher growth.

• Various Fed officials are now also debating a flexible inflation targeting regime (like an inflation target of +2.0% with a band of +/- 1.0% on both sides (1.0%-2.0%-3.0%)) for policy flexibility. But Warsh’s recent comments indicate less flexibility here and a 2.0%-1.9% inflation target as sacrosanct.

• Similarly, the Fed may employ unemployment rate targeting of 4.0% +/- 0.5% on both sides (3.5%-4.0%-4.5%) for the ease of overall policy implementation in a systematic way rather than rushing. At present, the Fed has no numerical targets for minimum & maximum unemployment, which helps it to move the goalposts as per its evolving narrative/changing financial conditions.

• Warsh may try to bring QT from 2027 to reduce the Fed’s B/S size and inflation structurally, while at the same time may reduce/exempt the regulatory limit for banks & institutions in the form of SLR (supplementary Leverage Ratio)—so that US banks & financial institutions may buy a higher amount of US bonds to keep bond yields lower. Lowering of the Fed's B/S size, i.e., less M2 (money printing), may limit fiscal stimulus in normal times (like Trump’s $1000 per newborn US baby DMAT A/C or the present war stimulus from the UK to Iran or Tax cuts), and the Fed may also keep the terminal rate relatively lower than 3.0%, say at 2.5% against 2.0% inflation (the real neutral rate will be reduced from 1.00-0.75% to 0.50%). 

• Warsh may also review the quantum of the Fed’s B/S-ample reserve regime. Now, the Fed maintains its B/S at around 22-20% of US nominal GDP, which may be reduced to ~15%, but that may again risk another episode of REPO tantrum (like in late 2019).  

Banking Regulatory Actions (Subject to Congressional approvals—difficult to get after the Nov '26 midterm election and the potential loss of Trump’s ultra-thin majority):

Beyond monetary policy, the Fed’s regulatory stance is pivoting sharply toward supporting domestic economic growth and bank competitiveness.

• Basel III "Endgame" Revisions: During congressional testimony, Warsh declared that final regulatory policy outcomes must strictly "be in service of the American economy." Regulators are looking to heavily revise proposed capital requirement frameworks to ensure large U.S. commercial banks remain globally competitive.

• Tailored Supervision over "One-Size-Fits-All": The Fed is formalizing a more tailored supervisory approach. A recent example includes a finalized rule modifying the Community Bank Leverage Ratio (CBLR), dropping it from 9% to 8% to reduce regulatory friction for local/smaller institutions.

• Crypto & Stablecoin Firewall: Warsh has explicitly drawn a hard regulatory line against bailing out digital asset frameworks. He noted that the Fed will aggressively step in to mitigate systemic risk but will actively resist launching liquidity safety nets or facilities to backstop independent stablecoin runs.

Conclusions

At a 3.75% REPO rate and 3.0% average core inflation (PCE+CPI), the Fed is now 0.25% below neutral (1.0% core real rate). The Fed may be on hold till Dec '26-27 to bring down both core inflation towards 2.0% and the unemployment rate (U3) to 4.0%, ensuring gradual price stability without causing a hard landing/employment crisis. 

Although the Fed is now 0.25% below the core neutral rate (REPO RATE 3.75% - 3.00% core inflation), theoretically, the Fed may also hike 0.25% as insurance and to show steadfast commitment to bringing down inflation at any cost to TGT. But in reality, any such rate hike will cause the US 10Y bond yield to soar above 5.0%—the recession panic line. 

Overall, at a glance, under Trump’s unpredictable policies, the US economy may now be facing a stagflation-like scenario despite Trump's savvy Warsh’s assessment of 'resilience.'

• Higher cost of living/inflation (adverse effects of tariffs, supply chain disruptions, and higher cost of energy/fertilizers/commodities) 

• Lower number of employed persons and a lower number of labor forces (both supply and demand issues/a slowdown in fresh job creation due to Trump’s uncertain policies and increasing reliance on AI/automation)

• Lower economic growth (2.1% in CY25 vs. 2.8% in CY24); ~2.2% expected in CY26.

The Fed has to act in a balanced way to bring down core inflation (average 3.0%) by around 100 bps for its inflation target. And at the same time, it has to ensure the headline unemployment rate stays below the 4.5% red line and further bring it down by around 50 bps to around 3.8%, pre-COVID average levels (minimum unemployment). 

Thus, overall, the Fed has to ensure neutral monetary policy—neither tight nor loose—to ensure a balancing act to bring down inflation without causing a sharp decline in employment (hard landing). To ensure a soft landing, the Fed may continue to keep the real interest rate around +1.0% above the average (12M/6M) core inflation (CPI+PCE). Thus, the Fed may be on hold at least till Dec '26 amid transitory hotter US inflation (due to the SOH blockade and higher oil) and a stable, but not solid, labor market.

Moreover, the Trump admin has to roll over ~$10T in debt in early 2027 at the lowest possible coupon rate, and thus Trump can't afford to allow ‘his Fed Chair’ Warsh to hike for any hike. Warsh & Co. will continue their hawkish jawboning as an effective (?) tool to manage bond yields and inflation expectations without any real rate action. But Central Bank jawboning is also a fine art, and Warsh has to learn it perfectly from his predecessor & much more experienced ex-Chair Powell. Warsh has to perfect his body language (reaction) while opting for an ultra-hawkish jawboning, but he often looks & sounds blunt. 

Ahead of the Nov '26 US midterm election, Trump is now trying to bring down prices of daily/essential goods for ordinary Americans (vote bank) by pressuring big grocery/FMCG retail giants like Walmart. This shows Trump may not allow the Fed (Chair Warsh) to raise rates on the excuse of higher inflation. The Trump admin may also ensure softer-than-expected core inflation and stable employment data to sketch a picture of a ‘resilient US economy’ ahead of the Nov '26 midterm election for his domestic political compulsion and to prevent Warsh & Co (Fed) from any real rate hike.

Officially, as a Central Bank, the Fed may be bound to hike rates in an effort to suppress demand while the supply capacity of the economy is constrained so that both match each other and bring down prices/inflation (whatever may be the underlying causes of lower/disrupted supply and hotter inflation). But a central bank can always be in wait & watch mode if it feels that the underlying causes of hotter inflation are indeed cyclical/transitory rather than structural/permanent.

Overall, transitory hotter US inflation and a stable/fragile but not solid labor market, coupled with Trump’s policy uncertainty, mean the Fed may be in wait & watch (hold) mode in the rest of 2026 rather than any hike or cut. But the Fed may double down on hawkish jawboning to ensure higher bond yields and tighter financial conditions to keep inflation/inflation expectations under control.

Although a less hawkish Fed (in reality) should be positive for the stimulus-addicted Wall Street, in the short/near term, the trajectory will depend upon Trump’s morning moods, truths, and random 24/7 media bytes (reality shows/circus) on Iran. As a face-saving exit from his Iran war mess amid reported shortages of critical munitions ahead of the Nov '26 midterm election, Trump may withdraw from any active war without even any nuclear deal with Iran if the latter agrees to open the SOH (Strait of Hormuz) without any preconditions and fees. But Iran may not oblige easily and may also instigate the US if Trump doubles down on the SOH blockade and other economic sanctions in an effort to cripple the Iranian economy so that it has to surrender to Trump’s whims & fancies.

Moreover, even if Trump officially withdraws from his Iran war ‘excursions’ (fun), the Israeli PM Netanyahu (BB) may not agree easily ahead of the Oct '26 Israeli general election. For BB, the Iran war may now be his ‘Triumph card’ for the election, although most of the Israeli voters may not be so amused with him. 

On the other side, Iran may also be divided into hard & soft lines. Iran may also be waiting for a weaker Trump after a potential heavy loss of Republicans in the forthcoming Nov '26 midterm election, which may be a referendum on Trump’s bellicose policies. 

And there is a growing probability that the US VP Vance may lead the Republicans or even the White House to prepare for the 2028 Presidential Election, turning Trump into a lame duck (shadow) President to deal with the heavy anti-incumbent wave—both locally & globally. 

In the longer run, the Fed usually considers the average of core CPI and PCE inflation for 1.9% as inflation and 3.8% as unemployment targets. But for such a goldilocks economic scenario, the Fed needs fiscal/government policy certainty and no supply chain disruptions (like Trump’s Iran war, the tariffriff & Trade war, etc.). Till then, under Trump (November ’28), the Fed may be under some types of political and policy uncertainty and may not be able to achieve such a Goldilocks outcome despite Warsh’s desperate effort.

Bottom line

Despite ultra-hawkish jawboning, the fine print of Warsh’s comments, his body language, and consistent pressure by Trump & Co.—Fedunder Warsh may be on hold till at least Dec '266 rather than any perceived hike. But at the same time, there is a real policy space for an insurance hike of +0.25% to keep the real neutral rate at +1.00% from the present average of +0.75% (Fed REPO rate 3.75% - 3.00% average core inflation). Thus, the Fed may also hike rates in Dec '26-Jan '27 if Trump suffers a massive loss in the '26'266 midterm election and then doubles down on the Iran war narrative, aiming to take down the SOH from Iran as a ‘decisive victory.'

The modifiedfiedfied Taylor Rule suggests a 3.75% Fed REPO rate for 2026 for the Fed’s Goldilocks dual mandate of maximum employment (i.e., 3.8% unemployment rate) and price stability (average 2.0% core inflation); i.e., the Fed should be on hold for the rest of 2026.

Technical outlook: DJ-30, NQ-100, SPX-500, and Gold

Looking ahead, whatever may be the narrative, technically Dow Future (CMP: 53850) now has to sustain over 53700-55100 for a further rally to 55500/56000-58500/59000 in the coming days; otherwise sustaining below 55000-54800/54800-54500/54000, DJ-30 may fall to 53700* and only sustaining below 53700, may further fall to 53500*-53200/52900-52500/51900 and 51300/51000-50500/50200 in the coming days.

Similarly, NQ-100 Future (30087) now has to sustain over 30500/30600*-30700/30800 for a further rally to 31000* and only above sustaining 31050-31100, may further surge to 31200/31300-31500*/32000 and even 32400/32500 in the coming days; otherwise, sustaining below 30400/30300-30200/30000, it may fall to 29900/29500-29100/28300*-28100/27800, it may fall to 27400-27000 and 26600/26300-26000/25600 in the coming days.

Looking at the chart, technically SPX-500 (CMP: 7800) now has to sustain over 7900 for a further rally to 8000/8150-8300/8500 in the coming days; otherwise, sustaining below 7875-7850, SPX-500 may again fall to 7750/7640* and 7550/7500-7300/7200 and 7100-69in thethe coming days.

Looking ahead, whatever may be the narrative, technically Gold ($4372) now has to sustain over 4425 for 4450/4480-4510/4530 and 4575*/4600-4650/4725 and 4825-4900 in the coming days; otherwise, sustaining below 4410/4375-4350/4325 Gold may again fall to 4295/4275*-4175/4155 and 4090/4050-4050/4000*/3970 and 3925* in the coming days.