Kevin Warsh presided over his first Federal Open Market Committee (FOMC) meeting as Chair this week, as the US Federal Reserve decided to hold rates steady. This came as no surprise to most market observers.
The question now is what will happen at the next FOMC meeting, a mere six weeks from now. With an Iran deal in the works (or not) and gas prices heading lower, perhaps sticky inflation will lose its mojo. Employment remains robust.
Iggy Ioppe, formerly at Credit Suisse and now CIO at Theo, believes the Fed’s next move will be a rate hike. He is not alone in his expectation
“The hold itself was never in question. What matters is Warsh using his first meeting to drop the easing bias, which lines up with what the data has been telling us for weeks,” Ioppe said. “Inflation is still at a three-year high, and payrolls are coming in hot – with over ½ million jobs created in the last 3 months. There is no version of the next few months where the Fed is cutting, but every day they don’t hike, they are effectively easing.”
Ioppe is optimistic that the Iran deal will help the Fed as oil drops toward $80, removing a nagging variable in the rate decision. He believes this lets Warsh hold steady without sounding an alarm.
“It does not pull cuts any closer, because core inflation was elevated before the war and remains elevated after it.”
The record rally in Gold has already retreated a bit, as the cost of holding the asset returns you nothing. A peace deal takes some of the political premium out and the momentum trade is now broken. The case for gold is now shifting from price to yield.
For Bitcoin, the bounce on the Iran deal is more about positioning and risk appetite, Ioppe said.
“With liquidity capped by a Fed that has stopped talking about cuts, it trades more on flows and fundamentals than on any fresh dovish impulse.”