I hope everyone had a nice weekend after another wild week. The title of the note reflects Kevin Warsh’s first FOMC meeting, where I believe he is trapped no matter what he does. If he is hawkish, he will be breaking promises made to Trump. On the other hand, if he uses the recent decline in oil prices as a reason for a wait and see stance, I think he is raising the odds we will see a panic hike in the second half of the year as the economy overheats.
In terms of data, tomorrow we get industrial production. Tuesday we get building permits, housing starts and import/export prices. Wednesday has retail sales and pending home sales before the FOMC meeting. Thursday has Philly Fed. Friday is a holiday.
In other major economies, Monday night has the BOJ meeting, where a hike is expected. We also have UK CPI before the BOE on Thursday.
I will be referring to the following previous notes in my discussion of the Fed.
The Breaking Point was my work in decomposing the supply chain issues evident in CPI.
The Pipeline is an extension of the above and looks at how price transmission works through the production process.
FCI: Spiral Risks outlined the risk from FCI easing during a supply contraction; the situation has only escalated since.
Let’s get into it.