Kevin Warsh’s windfalls aren’t just limited to interest

Kevin Warsh appeared last Wednesday as the head of the US Federal Reserve for the first time since his appointment Jerome Powell successor.

Nordic chief analyst Jan von Gerich your picture on Thursday’s Talousamaum Warsh’s message about the future interest rate policy is surprisingly strict.

“Especially since this was Warsh’s first meeting and Donald Trump has pressured him to cut interest rates, the message was surprisingly strict that interest rate hikes may still be needed,” von Gerich said.

According to the chief analyst, Warsh’s exit was interpreted by the market as clearly hawkish, and it increased expectations of future interest rate hikes, in the extreme case already in the fall.

“At the October meeting, the first withdrawal is already fully in the prices,” von Gerich said.

Warsh’s comments predict that, in addition to the changing interest rate policy, there will also be drastic changes to the Fed’s balance sheet. Warsh said in a published last July In an interview with the Hoover Institutionthat if the Fed’s “money printing machine” ran a little quieter, interest rates could be kept lower.

“Right now, there’s a huge amount of money being pumped into the system, which is keeping inflation above target. We’re talking about a $7 trillion balance sheet — about ten times bigger than when I started at the Fed,” says Warsh, who joined the Fed in 2006. message service X with a video clip from the interview.

“I believe that the current administration inherited a fiscal and monetary mess, and it is its duty to correct the situation. To illustrate the situation: we paid around one billion dollars in interest expenses every day just before the outbreak of the corona pandemic. Now we pay more than three billion dollars a day in interest,” Warsh updates.

According to Warsh, the balance sheet should be reduced and the Fed should withdraw from the market other than in crisis situations. This would curb inflation and enable lower interest rates, which, according to Warsh, is more important for the real economy than the size of the central bank’s balance sheet.

“We could call this practical monetarism,” he suggests.

The stock market is now in a delicate state and there are significant signs of stress below the surface, says Goldman Sachs Co-director responsible for equity distribution in the Global Banking & Markets unit John Storey in a video interview published on the investment bank’s website. According to him, volatility is already high, although it may not be visible in the indices yet.

The market is sensitive: the surprising changes flashed by Warsh could mean that sharp movements in the stock market are ahead.