What was Warsh thinking?

Daily update

The Federal Reserve left interest rates (and the accompanying policy “statement”) unchanged yesterday. Fed Chair Warsh appeared to try and speak to several audiences. US President Trump was told inflation was the fault of the Fed but would come down. Households were told not to assume the Fed would allow higher inflation (most US households do not know the Fed’s job is to control inflation). And markets were told a lot of things.
The suggestion that the bond markets were doing the Fed’s job for it by raising real rates could be interpreted as dovish for policy. If so, bond markets took things further with a sharp selloff in long-dated bonds. This may not all be inflation expectations—uncertainty risk must be adding to real yields, with economic consequences.
The Bank of England is as divided as the Fed over policy, but there is perhaps less uncertainty / risk about policy (because there is a clearer sense of the framework within which the BoE is thinking about inflation).
The US personal consumer expenditure deflator is due—it used to be supposed to be the Fed’s favored inflation measure, but Warsh has raised questions about that. German and Spanish July preliminary consumer price inflation numbers are due.