Warsh Holds His First Fed Meeting as Markets Sit Near Records

Kevin Warsh, who took the oath on May 22 as the 17th chair of the Federal Reserve, will deliver his first interest-rate decision on Wednesday afternoon in Washington. Money markets put the probability of no change near 97 percent, which would leave the federal funds target range at 3.50 to 3.75 percent. Attention will therefore center on the updated projections and on Warsh's first press conference.

What investors are studying is the gap between a market that expects rate cuts and a central bank that may not deliver them. Analysts expect the committee to drop its preference for lowering rates and adopt a neutral position, and at least three of the twelve voting members may now project rate increases this year. The Israeli market service Globes reported that the Dow Jones Industrial Average set another closing record, that Tel Aviv's TA-35 index fell about 1 percent, and that large banks reduced their forecasts ahead of the meeting.

A sound-money analysis treats the tension as structural. Years of credit expansion left equity valuations near records even as the policy rate sits well above its levels in the 2010s, and Warsh has long argued for a smaller balance sheet and stricter control of inflation. Demand for hard assets points to the same concern. Gold trades around 4,336 dollars an ounce, below its January peak near 5,589 dollars but still high compared with earlier years, and the World Gold Council found that 45 percent of central banks plan to add to reserves over the next year.