As we discussed in my note yesterday, the Trump administration continues to openly discuss prospects of a new hand-selected dovish Fed Chair. And the more it's talked about, the more a "shadow Fed" policy becomes reality, and integrated into the market outlook.
We may have seen the inflection point this morning.
Kevin Warsh, one of Trump's short list candidates to replace Jerome Powell, was on CNBC and didn't hold anything back on outlining what a new Fed regime would look like.
He called for broad reform at the Fed, suggesting that interest rates (rate cuts) are just the starting point.
He says "AI is going to make everything cost less," and that "we are at the front end of a productivity boom." So he's communicating to markets that economic conditions are set up for a non-inflationary economic boom.
Meanwhile, he criticized the Fed for holding down the economy because it wrongly believes that strong economic growth must be inflationary.
After this interview, Jerome Powell may have officially become a lame duck Fed Chair (functionally weakened). And a "shadow Fed" may now be a reality, and with meaninful influence on markets.
Markets reacted positively to Warsh: yields traded lower on the day, and stocks traded back to record highs.