ChainCatcher, citing Jinshi, reported that Capital Economics believes the Federal Reserve is almost certain to stand pat this week. Stephen Brown, the firm’s chief North America economist, said Warsh’s remarks could be more hawkish than expected, while the market risk lies in a communication mistake or a change in Warsh’s position.
Brown warned that if Warsh were constrained by Trump, a dovish communication tone could raise concerns about the Federal Reserve’s independence and push up long-end bond yields. The comments focus on the interaction between Fed messaging, market expectations and longer-maturity yields, rather than only on the immediate policy decision.
Brown also said there is a strong likelihood of two “insurance” rate hikes in December and early next year. While Capital Economics views an unchanged decision this week as nearly settled, Brown’s remarks place the next stage of policy communication, Warsh’s stance and the movement of long-end bond yields at the center of the discussion.