Warsh guides forward without forward guidance
At a Glance
Lead — The desk sees a net hawkish tilt emerging from Chair Warsh's latest commentary at the Jackson Hole Symposium, signaling potential shifts in monetary policy without explicit forward guidance. Per the full note, Warsh emphasized the Fed's commitment to controlling inflation, asserting a belief that current inflation expectations might not be well-anchored, which has impacted both front and back-end rates. The current consensus for EUR/USD sits at 1.1700 for Mar26, aligning with this hawkish sentiment amidst a mixed outlook from various firms. In this context, traders should monitor the evolving interest rate landscape closely.
Key Takeaways
- 01Chair Warsh's comments indicate a more hawkish stance from the Fed, despite no formal forward guidance.
- 02Market rates are adjusting, with the yield curve becoming flatter in response to anticipated Fed actions.
- 03Current consensus for EUR/USD sits at 1.1700 for Mar26, suggesting a broadly hawkish sentiment amid mixed projections.
- 04Traders should remain vigilant for shifts in inflation expectations as they could catalyze further market movements.
Full Analysis
What the desk is arguing
The desk posits that Chair Warsh's address indicates a shift towards a more aggressive monetary stance, despite the lack of explicit forward guidance. His comments on the need for stable prices while acknowledging that inflation remains well above the 2% target suggest a readiness to act if necessary. This was evidenced by the flattening of the yield curve, with front-end yields rising as traders price in potential tightening.
Warsh's observations regarding buoyant capital expenditure driven by AI and a resilient labor market underscore that monetary conditions are not yet significantly restrictive. This backdrop has led to some recalibrations in rate expectations, with market participants interpreting his speech as a signal of future tightening measures.
Where it sits in our coverage
For EUR/USD, our consensus target is currently set at 1.1700, with a range spanning from 1.1200 to 1.2000 by Mar26. Notable firm targets for Dec26 include ING at 1.1700, Morgan Stanley at 1.2000, and RBC at 1.2000.
This view aligns with the upper end of the cross-firm consensus, notably higher than the lower projections from firms such as Lloyds, which targets 1.1331 for the same timeframe.
How other firms see it
Among the aligned firms, ING, RBC, and Morgan Stanley share a similarly hawkish outlook. In contrast, Nomura and DANSKE present more cautious projections regarding GBP/USD and a slower pace of rate increases due to economic headwinds.
Additionally, movements in the USD/JPY could act as a critical bellwether, reflecting broader market sentiment towards U.S. monetary policy shifts as they intertwine with valuations in other asset classes.
Market Implications
Watch the EUR/USD as it approaches the consensus target of 1.1700; any further hawkish signals could push rates even higher. Additionally, the reaction in USD/JPY may indicate broader market sentiment regarding U.S. monetary policy.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
Rabobank | Bearish | 1.1000 |
ING | Bullish | 1.1300 |
MUFG | Neutral | 1.1200 |
From the original
Older quick take Quick take Published 15:46 Rates United States Warsh guides forward without forward guidance We got far more here from Chair Warsh then we were getting from his two FOMC meetings to date. He was keen not to provide forward guidance, but his words smacked of forwa
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