沃什听证会需关注的五件事

5 things to watch at Warsh's hearing Chief US Economist+1-212-250-6161 been scheduled for1Oam ET onTuesdayApril21st.Wedetailfivepoints offocusfor his testimony. Strategist+1-212-250-1741 How forcefully does he argue for rate cuts? Senior US Economist+1-212-250-6294 reduced the urgency for reductions? Economist+1-212-469-1679 Although we have not heard from Warsh recently, his comments prior to hisnomination indicated support for rate reductions based primarily on a forecastthat anticipates strong disinflationary forces from deregulation and Al. While weexpect hewill maintainthisnarrativeabout the economy,recent developmentsinflation has surprised to the upside, and the war in Iran poses further upside risksto inflation. Amy YangEconomist+1-212-250-9959 Inresponsetothesedevelopments,Fed officialshaveshifted ina morehawkishdirection, with"some" officials at the March meeting seeing a "strong case" formore two-sided language about the policy outlook. Markets generally agree, withonly~8bps of ratecutspriced for thisyear. AlthoughWarsh has argued for lower rates,we do not view him as structurallydovish. Instead, his views have tended to skew hawkish relative to others. Themost notable example was his concerns about inflationary risks from QE aroundthe GFC. A more recent example is that he did not support the Fed's 5Obpreduction in September 2024.In the current context, if Warsh is goingto lead aCommitteethatis increasinglysupportiveofkeeping ratessteady,hemightresistarguing too forcefully for rate cuts in the near-term. The nuance for Warsh will behowhebalancesadesiretolowerratesovertimewithaneconomicbackdropthatdoes not call for rate cuts at present. Treasury Secretary Bessent's assertionearlier this week"I understand if the Fed needs to wait on rate cuts"may providerequiring vigilance fora short period before resumingpolicy easing. For more detail, see: Fed Notes: What a Warsh nomination would mean for theFed Fed Notes Will Warsh endorsetheamplereservesregimeandadopttheconsensusviewthat balance-sheet reduction will only occur gradually over time following regulatorychanges? how outspoken he was about a desire for the Fed to operate with a smallerfinancial conditions, thus opening the door to policy rate cuts. nominated, our sense is that the consensus has coalesced around a drawn-outreserves.This case has been presented by a number of Fed officials, includingVice Chair of Supervision Bowman,Governor Miran,and Dallas Fed PresidentLogan,among others.Focuswillbe on whetherWarshconfirmsthismoregradualpathway to balance-sheet reduction. One key related point of interest will bewhether Warsh endorses the Fed's current ample reserves regime or advocatesserious consideration of a return to scarce reserves. More broadly, we thinkimplementation policies and emphasize that the process of implementing anychanges could take years. By way of background, Warsh has been consistently critical of the Fed's activeuse of its balance sheet over the past ~15 years. Although he supported the Fed'sinitial foray into QE in response to the GFC, he cautioned that later programs werenot appropriate,possibly raising inflation and financial stability risks, as well asmoving the Fed away from its core duties and into credit allocation policies thatcould distort markets.As he noted recently,"I worried mightily in the summer andfall of 2010 - a time of strong growth and financial stability - that the decision tobuy more treasury bonds-would involve theFed in the messypolitical businessof fiscal policy.QE2 was announced.Idisagreed with thedecision, and resignedfromthe Fedsoonafter."1 With respect to portfolio composition, the Fed is reducing its MBS holdings byreinvesting into T-bills and could speed that process with MBS sales. TheCommitteehas notyetsettledonatarget steady-stateTreasuryportfolio,andwesee reasonable prospects that under Warsh it could choose one that issignificantly shorter-dated than the universe outstanding.On future QE, we findit very unlikely that the Committee would forfeit an effective tool of monetarypolicy at the zero lower bound (ZLB) but could envision it adopting a differentstructure for purchases to address market dysfunction. For more detail, see: Fixed Income Blog: What could Warsh mean for the Fed'sbalance sheet? Fed Notes pressers,and more will hepresentconcreteproposals forhow communications should change?Warsh has been an outspoken critic of using forward guidance in"normal times." We expect he will repeat this criticism and ultimately lead a move away from itsgranular application,arguing its potential costs (impaired credibility,reducedflexibility)outweighitsbenefitsoutsideofaZLBenvironment. unlikely to gain broad Committee support. Instead, we anticipate reformsdesigned to reduce its role as a near-term forecasting tool. Possibilities include:shifting to rolling windows, focusing on a forecast central tendency or rangeinstead of individual dots, or embedding projections within a bro