SPECIAL REPORT: Was Kevin Warsh's Fed Debut A Hit? Or A Flop? | Axel Merk
The discussion centers on Warsh's drive to re‑anchor the Fed around price stability through tighter communication, governance fixes and a move toward a rules‑based reaction function. Panelists flagged operational limits on reshaping the balance sheet, skepticism about MBS holdings, and how geopolitical oil shocks — above $100/barrel — could have flipped near‑term policy. They also weighed conditional policy leeway from AI‑driven productivity gains against still‑elevated inflation, and noted markets promptly repriced to a more hawkish Fed while precious metals face a near‑term headwind but potential fiscal tailwinds.
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Read the Full SummaryKey Takeaways
Warsh is pursuing a governance 'independence plus accountability' workaround rather than asking Congress to split monetary and regulatory duties, creating roughly five internal task forces with an ambitious year‑end timeline and aiming to publish a more rules‑based (Taylor‑style) reaction function over coming months.
The Fed has overhauled communications—shortening statements, pledging to 'communicate a lot less', de‑emphasizing forward guidance (with voluntary dot‑plot participation and minutes released three weeks after meetings)—and is centralizing messaging and press conferences to limit regional 'chatter' and shape long‑term yields.
Establishing credibility on price stability is the Fed's top priority: Warsh signalled a 'do whatever it takes' stance to return inflation to 2%, with policymakers data‑dependent and emphasizing a multi‑week cadence that makes cuts conditional on sustained evidence that inflation expectations aren't rising.
Panelists stressed geopolitical shocks—notably oil moves linked to conflict—could have materially altered the FOMC's statement and near‑term choices (they noted if oil rose above $100/barrel or hostilities escalated Warsh might have signalled or executed a different path), and while the Fed can't stop such shocks it can influence how they transmit into the economy.
Market prices (e.g., oil and two‑year yields) are being treated as real‑time signals the Fed should heed, and markets already repriced toward a more hawkish Fed after the presser/dot plot—short‑term rate expectations moved earlier, cuts were removed from pricing, and the long end softened.
Warsh is uncomfortable with the Fed's large mortgage‑backed‑securities holdings—viewed as fiscal‑style credit allocation—and prefers a smaller balance sheet; operational options (swapping MBS into Treasuries or swaps with banks) exist but face New York Fed resistance, limited counterparties, and political/practical limits, so meaningful shrinkage is possible but unlikely to be immediate under the ample‑reserve regime.
GEO-POLITICS
“But separating those duties would be helpful, but you might not be able to do that without going to Congress, which you might not want to do.”—
“I just want to finish where I was going, which is it might have been a very different FOMC release if we hadn't had a peace deal, meaning let's say…”—
TECHNOLOGY
“But it could be that technology helps you do things. I mean, none of us have a secretary anymore. We do things ourselves. We've gotten more productive…”—
ECONOMY
“He is lashing himself to the mast of price stability saying we are essentially going to we're going to kill inflation or at least you know tame inflation to the…”—
“And he said, "Look, I'm I'm going to communicate a lot less. I don't think it's that appropriate…”—
“One of the things of course that may change is we may not have a press conference after every meeting, right?…”—
MARKETS
“And just before I hand it back to you, if you notice the markets, they priced in higher rates in the short term…”—
Introduction to Special Fed Debrief with New Chair Kevin Warsh
Adam introduces a special debrief on incoming Fed Chair Kevin Warsh to analyze his first FOMC meeting and public remarks with guest Axel Merk.
Axel Merk's Excited Reaction to the FOMC Meeting
Axel expresses enthusiasm for Warsh’s remarks, saying they reflect a clear intellectual commitment to reframing Fed priorities toward price stability.
Adam's Key Takeaways from Kevin Warsh's Remarks
Adam lists his key takeaways: Warsh’s different approach, lashing himself to price stability, reduced communication, and creation of multiple internal task forces.
Axel on Knowing Warsh & Lobbying for His Appointment
Axel recounts knowing and lobbying for Warsh, outlining why Warsh’s longstanding critiques of the Fed made him a logical reform pick.
Challenges Warsh Faces as an Outsider Reformer
They discuss the political and operational challenges Warsh faces as an outsider attempting to reform a politicized, decentralized Fed structure.
Ending Forward Guidance & Why It Matters
Axel explains why ending forward guidance matters: it prevents Fed jawboning, lets markets reflect data, and restores useful market signals.
Shortened FOMC Statement & Focus on Price Stability
They praise the much-shortened FOMC statement and Warsh’s clear statement that the Fed will pursue price stability as a focal anchor.
Dot Plot Decision & Abstaining from Projections
Discussion of the dot plot: Warsh abstained from projections, allowed optional participation, signaling intent to de-emphasize projection-based forward guidance.
Markets' Reaction: Higher Short-Term Rates, Lower Long Yields
Markets repriced quickly toward a more hawkish Fed — short-term rates rose while long yields fell, signaling confidence in disinflation credibility.
Holding Rates Steady & Hawkish Interpretation
Although rates were held steady, speakers interpret Warsh’s tone and actions as hawkish credibility-building rather than conciliatory.
Fed Minutes Reform & Communication Issues
Axel criticizes the timing and usefulness of Fed minutes, arguing current release lags and editorializing distort markets and should be reformed.
Rules-Based vs Discretionary Policy Approach
They debate rules-based versus discretionary policy; Warsh favors a reaction function to anchor expectations though implementation will be gradual.
Fed's Bazooka: Interest Rates vs Balance Sheet
The Fed’s policy 'bazooka' includes rates and the balance sheet; Warsh signals preference for the rate tool while reviewing balance-sheet practices.
Ample Reserves System Under Review
Warsh put the ample-reserves system under review; Axel argues reverting to a pre-crisis limited reserves model would restore clearer market signals.
Task Forces for Major Fed Overhaul
Warsh formed multiple task forces to build consensus for operational and governance overhaul rather than imposing instant unilateral changes.
Prioritizing Price Stability Over Full Employment Mandate
Warsh prioritized price stability, framing it as the path to durable maximum employment and rejecting narratives that blame only external shocks.
Productivity Boom & Its Role in Policy
They weigh the potential for an AI-driven productivity boom to provide conditional room for lower rates if inflation meaningfully moderates.
Tension Between Regional Fed Presidents & Governors
Axel describes structural tension between regional Fed presidents and Board governors, complicating top-down reform and communication control.
Financial Conditions, Asset Prices & Housing
Conversation on financial conditions stresses Warsh will monitor aggregate conditions and housing tightness rather than micro-managing asset prices.
Precious Metals Outlook Under Warsh
Panel concludes Warsh’s hawkish credibility is a near-term headwind for precious metals, though fiscal risks and policy drift could later support metals.
Potential Rate Cuts Later This Year?
They say rate cuts remain possible this year if oil and inflation fall and the committee reaches conviction, but flip‑flopping is unlikely.
Lightning Round: Task Forces & Volatility Concerns
In a rapid-fire assessment they justify task forces as pragmatic for bureaucracy, argue reduced forward guidance may lower volatility, not raise it.
Why Rejecting the Previous Regime Was Necessary
Axel defends Warsh’s public rejection of prior Fed practices as necessary to re-anchor independence, accountability, and clearer monetary boundaries.
Closing Thoughts & Where to Follow Axel Merk
Closing thoughts stress cautious optimism: Warsh set the tone and has a window to move the needle while obstacles and critics remain.
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