“A good family fight,” that’s how Kevin Warsh described the first FOMC meeting he presided over as the Federal Reserve chairman on Tuesday and Wednesday.
It was a welcome description in our view.
We have spent the better part of the last 48 hours annoyed at the state of mainstream media. It started with a press conference we attended, hosted by a friend of ours who’s running for Governor of Maryland. That was our first mistake.
The second was trying to read media analysis of Kevin Warsh’s first public address after the FOMC meeting.
Before we begin, you’ll need to understand our frame of reference. I agree with Ray Dalio, who said this morning on X:
“I believe we are currently on the brink. We are entering a particularly risky period, expected to last between the 2026 midterm election and the 2028 presidential election. At the same time, the monetary situation is becoming increasingly threatening. The U.S. government currently spends $7 trillion while taking in approximately $5 trillion, resulting in a 40% overspend. While the government has significant debt to finance, demand for that debt is falling. This decline in demand is driven by standard supply and demand factors, as well as fears from debt holders regarding potential sanctions.”
You’d think even the mainstream media would be curious about what Kevin Warsh has in store for an overhaul of the Fed. But then, you’d be wrong, wouldn’t you?
Much of what Kevin talked about was a radical reorganization of Federal Reserve operations, procedures and communications. What financial writers heard was “rates will stay higher for longer.”
🎪 Politics as Bloodsport in Baltimore
First, a look at how national politics is festering at the local level in Baltimore.
If you’re not familiar with the Mid Atlantic, Maryland is essentially a vassal state of the Federal government. And a stronghold for the Democratic National Committee.
Several hours before Warsh took questions from reporters in Washington, Ed Hale stood before a much smaller group of reporters in Baltimore.
In a piece we titled “They Don’t Make ‘Em Like Ed Hale Anymore,” here in the Swan Dive, we’ve introduced you to old school capitalist businessman Ed Hale before.
Over a 60-year career, Hale built one of the largest tugboat and barge operations in the Mid-Atlantic. He helped develop the vacant lots and old oil-soaked industrial parks of Baltimore’s Inner Harbor into what are now thriving mixed-use communities in Harbor East and the Canton waterfront. He owns the Baltimore Blast.
We know Ed because both of our boys spent years playing competitive soccer at the national level in the same circles.
The purpose of Hale’s press conference was to expose the underbelly of Maryland politics. It’s a dirty business. A bloodsport.
Hale and his associates outlined how Governor Wes Moore and the Maryland Democratic Party are paying for campaign ads that prop up Ed’s opponent in the Republican gubernatorial primary on June 23, 2026. Why? Because Moore believes Ed’s opponent will be easier to defeat in November.
For dramatic purposes, we point out that Ed’s opponent is a cardboard cutout of a MAGA Republican and a convenient straw dog for Moore to call a fascist and blame for the loss of Federal jobs during the DOGE phase of Elon Musk’s tenure as Trump’s First Buddy.
The revelations Ed and his team highlighted had also been detailed in an article published yesterday by The New York Times.
The Times argued that Moore is using his own money to prop up Hale’s Republican opponent, the same playbook Moore used to gain the governor’s mansion four years ago.
A businessman first. Politician by necessity. Ed Hale made some sharp accusations this morning at the Baltimore Blast headquarters on Golden Ring Road. (Source: Fox News Baltimore)
The Times goes on to openly wonder why Moore spends his time pursuing national political ambitions while Maryland, in general, and Baltimore in particular, continues to struggle… businesses leaving town, predatory taxation, pernicious regulation and permitting delays.
“Eat the rich” as a political strategy works very well in campaigns for local Baltimore City office and, by extension, in statewide elections.
Moore was reportedly in Beverly Hills, California, 2,325 miles from Baltimore, raising money for the Democratic National Committee while the press conference was taking place yesterday morning.
Hale is a businessman first. A politician last. That’s his schtick.
Maryland remains one of the most naturally advantaged states in the country. The Port of Baltimore sits on one of the finest natural harbors on the East Coast. Johns Hopkins remains one of the world’s leading research institutions. Washington sits less than an hour away. Defense contractors, biotechnology firms and financial companies already possess deep roots throughout the state.
Hale’s argument is not that Maryland lacks advantages. His argument is that advantages are being squandered. Good luck if you run a business in Maryland and run afoul of the Democratic machine. You can expect taxes, targeted regulation, fines and civil litigation.
Okay. So, business as usual in the world of politics.
What annoyed us, we realized later, was how apathetic the press who attended the event were. Fox, ABC, NBC… CNN, a few other independents, we presume, were standing around looking at their phones; a ragtag bunch. Tattoos, scruffy chins, sweatpants, you know the type.
They were clearly annoyed that they got assigned today’s detail. One reporter started out with a good question. She wanted to know whether Moore’s campaign would be successful in helping the other candidate in the primary. We thought she would follow up on the allegations that Moore had violated campaign finance rules. No dice. She lost interest before Tyron Keys, Ed’s pick for Lieutenant Governor, finished the answer.
After a bit of silence, another reporter timidly asked if Mr. Hale had spoken to Trump about a possible endorsement for his campaign.
“No,” Ed answered. “I’m Ed Hale. I’m running as Ed Hale.” The implication, we assume, is he’s not interested in party politics or the national scene. Born and raised in Baltimore, a lifelong Democrat, mind you, he’s dismayed at how politics is ruining his city.
🏛️The Fed’s Catch-22
You’re likely aware by now that the Federal Reserve left interest rates unchanged between 3.5% and 3.75%.
The usual culprits: Inflation is clocking in at 4.2%. Oil prices, while down by 20% this week, remain vulnerable to events in the Middle East. Commodities traders appear to like Trump’s peace memorandum even if they don’t know what’s in it yet.
Here’s an interesting catch-22 for Kevin Warsh: Oil (we watch WTI) needs to stay in the mid-$70s range to incentivize big oil to invest in new rigs and refineries, should the Trump great reset survive the midterms.
But for Republicans to win the midterms, maintain control of the purse strings in Congress, and avoid costly, distracting impeachment proceedings, energy prices – most visibly, gasoline – need to drop to reassure potential swing voters that the economy is moving in their favor before November.
Enough with the 2% inflation target. The Phillips Curve is too wonky to be useful. Warsh’s Fed will base monetary policy on market-driven evidence. And strengthen the bank’s credibility… or so the story began yesterday. Again, tough to tell by reading the mainstream headlines.
🥊Warsh, The Pugilist
“A good family fight,” is how Kevin Warsh described his first Federal Open Market Committee (FOMC) meeting in 15 years. The phrase carried a certain charm.
Alan Blinder noted in The Wall Street Journal that Jerome Powell’s final meeting ended with the most divided vote on rate cuts or hikes in the Fed’s history.
Warsh inherited the committee with Powell still a member.
But in his first presser, Warsh announced a 12-0 unanimous decision to keep rates unchanged. Anyone who has attended a large family gathering understands the distinction between disagreement and dysfunction.
The Federal Reserve’s job is not to eliminate disagreement. It is to make decisions in the presence of uncertainty.
For his part, Warsh spent much of the press conference outlining the radical changes he will make to Fed procedures and its role in the marketplace and the economy.
He announced a broad review of Federal Reserve policy and procedure, focusing on five areas:
- Communications policy
- Economic forecasting
- Data dependence
- Balance-sheet management
- and the Implementation of monetary policy itself.
By the time he got to these changes, the market had already heard “no change,” moved on and closed the day lower across all three major exchanges.
🧨How Radical Will Radical Be?
For most of the past 20 years, central bankers have become increasingly comfortable telling markets what they intend to do, when they intend to do it and under what circumstances they might change their minds.
Entire cottage industries have emerged to interpret every speech, every projection and every dot appearing on the Federal Reserve’s quarterly forecast charts.
The $4 billion restoration project at the Eccles Building, the Federal Reserve headquarters, is an apt metaphor for the project underway under the Warsh Fed. Warsh’s goal is an overhaul of the Fed’s processes to restore both political independence and credibility to the bank, a heretofore important institution in the stewardship of the Republic. (Source: Getty Images/CNN)
Warsh said effectively, “Enough of that. It’s a waste of everyone’s time.” No more forward guidance. No more phony dot plots. No more extended press releases or follow-up conferences.
The Fed’s #1 job is to maintain price stability for the dollar and market conditions on the indexes and in the economy. During the Bernanke and Yellen years, the Fed increasingly put its thumb on the scale in favor of DEI and climate change initiatives.
And more egregiously, if you follow the breadcrumbs, they completely dropped the ball in mitigating risk in the San Francisco Fed, leading to the failure of Silicon Valley Bank (SVB) in March of 2023. Followed by a string of five more bank failures, among the largest in U.S. banking history.
Under Powell, there was too much jabbering about the data they use to make decisions, how they make decisions, a review of those decisions and a response to press interpretations of those decisions.
Powell’s tenure marked a Fed that was too data-dependent to act when inflation soared in 2021, then claimed it was “transitory” when the data said otherwise.
Enough, already, right?
🔧 The Warsh Mandate in Practice
Warsh’s mandate includes lower borrowing costs for the AI intelligence economy buildout, but he expects to achieve those lower rates through efficiency and focus at the Fed itself, and a restored emphasis on fiscal restraint in Congress.
Both those efforts will require an extensive overhaul, most notably from Congress.
Warsh announced three task forces composed of Federal Reserve staff and outside deep subject-matter experts:
Task Force #1: One will examine communications policy, including forward guidance, speeches, press conferences and market signaling.
Task Force #2: Another will examine forecasting methods, economic models and the role of projections in policymaking.
Task Force #3: The third will examine balance-sheet policy, market operations and the Federal Reserve’s role in financial markets after years of quantitative easing and extraordinary intervention.
Warsh also declined to submit a personal projection to the famous dot plot, saying he does not consider it a particularly useful policymaking tool.
A redlined markup of the Fed’s press release following the FOMC meeting yesterday. Fed communications are the first, and probably easiest, target of Kevin Warsh’s hitlist for overhaul asap. (Source: Andrew Packer)
The Federal Reserve still carries a balance sheet of roughly $6.7 trillion. When Ben Bernanke arrived at the Fed, the balance sheet stood below $900 billion.
Conditions have changed slightly in the past two decades. Warsh’s goal is to restore credibility to the institution and price stability to the market. No mandate could be more important during the mania surrounding the Mag 7, hyperscalers, chipmakers and SpaceX.
📱 Selective News Avoidance
After being unnecessarily annoyed by the press, we were happy when this nugget caught our eye while gathering today’s Swan Dive:
Reuters data scientists concluded that nearly half the population across 48 countries actively avoid the news. These are, by sheer coincidence, a cross-section of the same people who are trusted to vote for good governance in democratic republics. Lord help us. (Statista.com)
The Reuters Institute released its latest Digital News Report this week.
Across 48 countries, 42% of respondents said they sometimes or often actively avoid the news. When Reuters first asked the question in 2017, the figure stood at twenty-nine percent. Roughly half of respondents in the United Kingdom now describe themselves as selective news avoiders. In the United States, the figure approaches forty-five percent.
Reuters researchers describe two broad categories of news avoiders. Some have little interest in current events. Others remain intensely interested but deliberately limit their exposure because the volume has become overwhelming. They continue following events. But only of the sources that corroborate their worldview.
Both groups, one assumes, also vote.
📜 Harry Truman’s Phone Call
There’s a saying in French, plus ca change, plus c’est le meme chose. The more things change, the more things stay the same.
If you think the Trump administration’s ban on foreign actors using Anthropic’s Mythos and Fable 5 AI platforms is government overreach, well, it’s nothing new.
On June 18, 1943, Senator Harry Truman was investigating wartime spending.
Well into Truman’s presidency, the Manhattan Project remained a top-secret endeavor. Only after Roosevelt died in April 1945 did Stimson explain that the United States was developing a weapon capable of changing the course of history. (source: History Channel)
As chairman of a Senate committee examining defense contracts, Truman had begun asking questions about a facility in Pasco, Washington. Documents were being requested. Witnesses were being interviewed. Staff investigators were becoming increasingly interested in what appeared to be an unusually expensive government project.
Secretary of War Henry Stimson picked up the telephone.
Stimson informed Truman that the facility was connected to a highly classified military program and suggested that further inquiries would be unwise.
“You won’t have to say another word to me,” Truman replied.
The facility was part of the Manhattan Project.
At the time, only a handful of people knew it existed. Franklin Roosevelt had approved the program years earlier. Even after Truman became vice president in 1944, no one informed him.
Only after Roosevelt died in April 1945 did Stimson explain that the United States was developing a weapon capable of changing the course of history.
Truman later wrote that he had been told the country was perfecting “an explosive great enough to destroy the whole world.”
A few months later, the secret ceased being a secret. The world has been trying to understand the consequences ever since.
~ Addison
P.S. I’m holding out that at least a few journalists get the meaning of “the Fed talks too much” and “let the market decide” what monetary policy should be.
Today on Grey Swan Live!, Ian King joins us to discuss the latest in the AI trade, what it means for our Dollar 2.0 thesis and what America’s future looks like as we prepare to celebrate America’s 250th.
