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Notes -
Kevin Warsh has been sworn in as fed chair, and markets have been digesting his recent statements in an attempt to predict future movements in the federal funds rate.
What are your predictions on rate changes over the next year?
From my perspective, Warsh is in a tight spot. Inflation is stubbornly sitting above the 2% target, which would suggest a series of rate increases, culminating around 5.5 - 5.75%. Comments from major bond investors have said the same. Unfortunately, the debt to GDP ratio is high enough at this point that there may be a ceiling to how high he can go before the US starts seeing structural problems.
My prediction is that we'll see a single token rate increase this year, and the Fed will make excuses for why they don't go higher. Particularly, I believe that they will claim that most of the inflation is transient due to the Iran conflict, and that AI-driven productivity gains are inherently deflationary.
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