Warsh Tells Trump No Twice in One Speech

Kevin Warsh went to Jackson Hole on Friday to give his first address as Fed chair and came home having said no to the president twice. The first no was the headline: short-term yields jumped as Warsh vowed to bring inflation back to target and let bond markets price in a possible hike, the opposite of the rate cuts Trump has been demanding for months. Wednesday this column read Warsh's move to retire forward guidance, the Fed's old habit of pre-announcing its rate path, as an attempt to buy the central bank room to maneuver without committing to a direction. Friday's speech confirms that reading. He used the room, and he used it against the White House.

The second no matters more by Sunday morning. Warsh told the same audience that AI is advancing faster than his own staff's models expected, and that the productivity and labor effects are too unsettled to build into a rate path with any confidence. That is not a hedge, it is Warsh naming the actual reason forward guidance had to go: he does not know what a trillion dollars of Nvidia driven capex does to the labor market fast enough to write it into a dot plot. FT's framing overnight, that Warsh put the Fed on a collision course with Trump ahead of the midterms, captures the politics but skips the mechanism. The two year yield move Bloomberg tracked overnight is the market pricing the politics. The AI line is Warsh telling you the Fed's own staff models cannot forecast what AI does to jobs and output.

By morning, HK trading desks have a new frame for Monday: a hawkish Fed chair who admits his own model is behind the AI curve is a different risk than a hawkish Fed chair with conviction. A rates desk here should discount his September dot plot more than the market currently does, because Warsh just told you the input he needs is one he does not have.