What does Warsh want?

Daily update

Federal Reserve Chair Warsh was famously accused of being the president’s “sock puppet” during Congressional confirmation hearings. The accusation clearly stuck with Warsh, who offered a strident defense of Fed independence in yesterday’s testimony. However, the two days before Congress could offer a hint of hosiery—Warsh said inflation was the fault of the Fed (so, not US President Trump), blamed errors on previous Fed decisions (criticized by the administration), while suggesting the productivity pixie of AI (which the administration does not want regulated) could lower rates (which the administration wants).
Warsh offered little policy guidance. The idea that AI inflation effects could be overlooked as a temporary relative price shock might also apply to oil prices (although consumers are more aware of oil prices than semiconductor prices). Warsh sounded more cautious about reducing the Fed balance sheet, which hints at a willingness to listen to expert opinion.
US June retail sales data is important, but the narrative of a resilient US consumer lowering savings rates to pay tariff and oil related price increases is now very well established. The data does not adjust for inflation (so, recent moderating inflation trends need to be factored in).
UK May monthly GDP, and final Italian June consumer price data are of limited market interest.