UBS On-Air: Paul Donovan Daily Audio 'Policy, promises, and affordability'
Per the full note from UBS On-Air, Paul Donovan argues the upcoming FOMC meeting and Chair press conference are increasingly irrelevant for policy signalling, with unchanged rates fully priced and investors skeptical of any useful insight from Warsh. Instead, the desk contends that genuine Fed guidance now emerges from intellectual leaders like Williams and Warren outside the media spotlight — a less efficient but operative framework. The supporting evidence is the US affordability crisis visible in sentiment surveys, though extreme partisanship distorts the data's economic utility; notably, the Michigan poll shows Republican inflation expectations at their highest since Trump took office, suggesting political rather than economic relevance. With no internal coverage on tracked currencies and no high-impact calendar events in the next 30 days, the tradeable signal is thin, but the note implies monitoring political responses — such as promised bonus payments — as potential policy catalysts ahead of mid-terms.
What the desk is arguing
Per the full note from UBS On-Air, Paul Donovan advances a declarative thesis: the FOMC meeting and Chair's press conference have lost their capacity to move markets or clarify policy, with unchanged rates fully anticipated and investors dismissive of Warsh's ability to offer insight. The desk frames this as a structural shift in how US monetary policy is communicated — guidance now flows from intellectual leaders like Williams and Warren away from the media spotlight, which Donovan concedes is 'not the most efficient way of conducting policy, perhaps.'
The supporting evidence centres on the US affordability crisis as reflected in consumer sentiment surveys, with a fresh poll due today. Donovan highlights that the Michigan poll shows Republican inflation expectations at their highest since Trump took office, indicating that affordability concerns are beginning to penetrate partisan bias. However, he cautions that extreme political partisanship distorts the data to the point of denying real economic use, making the relevance 'perhaps more political than economic.'
The counterfactual the desk implicitly rejects is that the FOMC meeting and press conference remain the primary venue for policy signals. Instead, Donovan argues politicians pay attention to opinion polls, and the administration's concern about mid-term election results — evidenced by promised bonus payments — means sentiment surveys may produce further policy pledges even with diminished economic relevance.
How other firms see it
With no per-firm forecasts in our internal coverage for the currencies mentioned, there are no aligned or contrary firms to group. The desk's view stands as a standalone commentary on Fed communication dynamics rather than a directional currency call.
Related indicators that intersect this thesis include US durable goods orders data due today, which Donovan notes will be released alongside the sentiment polls. Additionally, China's October industrial production improved year-on-year largely on base effects, with profit growth supported by electronics skewed toward external demand — a backdrop that may influence risk sentiment and dollar dynamics indirectly.
What the calendar says
No high-impact events are scheduled in the next 30 days for the relevant jurisdiction, per our calendar. The note itself references today's US durable goods orders and a consumer sentiment poll, but these are not flagged as high-impact in our system. The FOMC meeting tomorrow is noted by Donovan as unlikely to produce market-moving insight, reinforcing the desk's thesis that policy signals now emerge elsewhere.
Key takeaways
- 01UBS's Paul Donovan argues the FOMC meeting and Chair press conference have lost their policy-signalling power, with unchanged rates fully priced and investors skeptical of Warsh's insight.
- 02Genuine Fed guidance now comes from intellectual leaders like Williams and Warren outside the media spotlight, which Donovan calls a less efficient but operative framework.
- 03The US affordability crisis is visible in sentiment surveys, but extreme partisanship distorts the data's economic utility; Michigan poll shows Republican inflation expectations at their highest since Trump took office.
- 04Political relevance outweighs economic relevance — promised bonus payments signal administration concern about mid-terms, and sentiment surveys may trigger further policy pledges.
- 05China's October industrial production improved on base effects, with electronics profit growth skewed toward external demand.
Market implications
Watch for any policy pledges or fiscal announcements from the US administration in response to sentiment surveys, particularly around mid-term election positioning. The durable goods orders print today may offer a brief distraction, but with the FOMC meeting expected to be a non-event, focus on political signals and any commentary from Fed intellectual leaders like Williams for genuine policy direction.
Risks to this view
The call is invalidated if the FOMC meeting or Warsh's press conference delivers an unexpected hawkish or dovish surprise that shifts rate expectations materially. A stronger-than-expected durable goods print or a sudden shift in partisan sentiment data could also force a reassessment of the political-economic interplay.
Good morning, this is Paul Donovan, Chief Economist at UBS Global Wealth Management. It's 7 o'clock in the morning London time on Tuesday 27th October. Markets may be somewhat becalmed ahead of the US monetary policy decision tomorrow, although it is debatable as to whether the FOMC meeting and press conference will have the impact that they once had.
The market consensus is for unchanged rates and a press conference from Fed Chair Walsh is not likely to provide investors with much insight into policy. The way US policy is now evolving, we must wait for the intellectual leaders of the Fed – Williams, Warren and others – to give their guidance, away from the media spotlight of the Fed Chair's press conference. It's not the most efficient way of conducting policy, perhaps.
The US affordability crisis is something that is being reflected in consumer sentiment surveys, and there is another poll out today. However, the political partisanship is becoming ever more extreme in the United States and that distorts the data so as to deny any real economic use from these numbers. Even so, the Michigan poll has suggested Republicans' concerns about the affordability crisis are beginning to penetrate partisan bias, and their inflation expectations are the highest since US President Trump took office.
The relevance of this data is perhaps more political than economic. Politicians do pay attention to opinion polls, and the administration does seem to be concerned about the mid-term election results, so judge from the promised bonus payments that are being offered. Sentiment survey may therefore produce further policy pledges, even if there is less economic relevance.
We'll also get US durable goods orders data today. China's October industrial productions data improved in year-on-year terms, largely on base effects. Profit growth remains OK, with electronics a very key part of that growth.
This is presumably skewed towards external demand, as the domestic side of the Chinese economy remains lacklustre. One point that is worth noting is that this is not consistent with the idea that China is dumping product overseas. That would require shrinking, or no, profits.
It says nothing about the role of subsidies, etc., but straightforward dumping is not consistent with these macro numbers. The UK's British Retail Consortium Shop Price Index was higher than a total of five economists had forecast it to be – there isn't really a consensus on this number. This is despite the fact that the labour costs in the retail sector have been moderating, with falling retail employment and average earnings growth slowing very sharply in the retail sector this year.
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