Capability and Commitment?
June 18, 2026
***********
–Hard flattener as Warsh focuses on price stability. 2y up 13 bps to 4.176%, tens up only 3.9 to 4.465% and 30y bonds were nearly unch’d at 4.92%. 2/20 new low at 29 bps, 5/30 new low at 68. On the SOFR strip, the weakest contract was SFRH7 (also now the lowest), down 15.5 at 9590.5 (so 4.09% vs current EFFR 3.63, nearly 2 hikes). All calendars made new recent lows, reds, (2nd yr) -9.875 to just under 9605, greens -5.625 to just under 9616, blues -3.25 to 9613 and golds -1.25 to 9604. The red/gold SOFR pack spread settled at just +1 bp, nearing inversion, an indication of ‘tight’ central bank policy.
–SEP: PCE inflation marked higher, and a hike was penciled in for the end of this year.
–In response to a question from Colby Smith (NYT), Warsh said this: “…we have the capability and commitment to deliver on our price stability objective of 2%. That’s exactly what we’re going to do.”
Yet, as usual, the 2% goal is 2 years away on the SEP, just as it has been for some time. Warsh appears to have deftly navigated the first FOMC, as bonds are printing new recent highs this morning at 113-17, with the 30y yield at 4.878, just below the 50% retrace from Feb low 4.61 to May high 5.18 (4.90).
–Tim Cook of Apple says price increases are no longer avoidable is input costs surge.
–In an effort to sharpen communication Warsh has eliminated forward guidance and shortened the statement. As attributed to Mark Twain: “If I had more time, I would have written a shorter letter.” In the 1980’s, we needed ‘Fed watchers’ to determine whether the Fed had changed policy or not. The signals occurred through Open Mkt Operations. No statements. Just an unexpected ‘matched sales’ around 10:35 CST. The only clue I had was watching John Fife who ran the Dean Witter bond futures desk on the CBOT floor, flash large sell orders into the pit at ‘Fed time’. Warsh could easily attain 2% inflation quickly by jacking up rates in large increments, at the cost of higher unemployment and a stock market deflation. Pain is involved. Powell also vowed to reach 2% inflation…
