On Friday, Warsh said inflation data “are more concerning” than trends in the labor market, adding that inflation is unlikely to return to target on its own. He pointed to PCE inflation, the Fed’s preferred gauge, standing at 3.7%, calling that level concerning relative to the central bank’s 2% target.
He also noted that over the past year, more than half of goods and services tracked by the government saw price increases of 3% or higher, well above the roughly one-third that saw comparable increases in the two decades before the pandemic. The remarks were quickly read as hawkish, or pro-rate-hike, sending social media abuzz with expectations of a 25-basis-point hike in September. The benchmark borrowing cost currently sits in a range of 3.5% to 3.75%.
BTC fell 3% to under $77,000 the same day, marking its first notable pullback following a steep rally from roughly $63,000 to over $80,000 earlier this month. Gold fell too, while the Dollar Index and Treasury yields both rose.
Bianco isn’t alone in downplaying rate-hike fears. Firms including ABN AMRO Investment Solutions and Brandywine Global Investment Management are similarly skeptical.
Robin Brooks, senior fellow at the Brookings Institution and former chief economist at the IIF, said that a potential rate hike would be aimed at calming Treasury-market jitters rather than delivering outright policy tightening. Such a move could signal that the Fed remains credible on inflation, reducing the extra premium investors demand to hold long-dated bonds and thereby capping the rise in yields.
