No. of Recommendations: 7
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https://discussion.fool.com/t/control-panel-new-fo...New Fed Chair Kevin Warsh gave his first press conference for the first FOMC meeting under his leadership. As expected by the markets, the FOMC did not change the fed funds rate though they removed any mention of an “easing bias.”
The press conference flew under most peoples’ radar. Tucked inside it is the mention of five new “task forces” that sound boring but could radically change the Fed’s operations and would potentially impact the markets - bigly.
federalreserve.gov
FOMCpresconf20260617.pdf
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The Five Task Forces Specified in the Document, along with my comments. Task forces in boldface, my comments in regular font.
1. Fed Communications: Tasked with reviewing the form, frequency, and function of Fed messaging, including a close look at the Summary of Economic Projections (SEP) and the “dot plot”.In the book “21st Century Monetary Policy,” ex-Fed Chair Ben Bernanke described how he changed the Fed’s public communications from Alan Greenspan’s deliberate obfuscation to a clear messaging of the Fed’s intended actions ("forward guidance"). That changed the market’s attention away from data and toward what they predicted the Fed would do in response to the data. Warsh wants to change this. He refused to put a dot on June 2026’s dot plot and wants to remove it altogether. That would free the Fed from being anchored to previous predictions so it could respond to changing data.
Here’s the June 2026 projections, including the dot plot.
federalreserve.gov
fomcprojtabl20260617.pdf
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The open communication style of the Fed since Bernanke has smoothed out a lot of volatility caused by speculator guesswork. If the Fed stops communicating this volatility will return.
2. Balance Sheet Policy: Charged with reviewing the risks and benefits of the current ample-reserves regime and the overall size/composition of the Fed’s balance sheet.This is a steel hand in a velvet glove. The current ample-reserves regime is not the traditional Fed way. The traditional banking system used a “scarce reserves” policy where banks borrowed from each other when they needed overnight reserves and only went to the “Fed window” when they were desperate.
The Federal Reserve began utilizing an ample reserves framework (often called a floor system) de facto during the Global Financial Crisis in October 2008, when it began paying interest on bank reserves. The central bank officially formalized this approach in January 2019.
When the Fed raised the fed funds rate in 2022 to combat inflation it paid significant interest to banks that kept their reserves at the Fed. It’s hardly ever mentioned that this has been a continuous stream of risk-free money pumping up the markets. The Fed pays the banks interest using fiat dollars conjured out of thin air. The banks use the money to lend to their traditional customers but also to the unregulated shadow banking system that speculates in many risky areas.
The Fed has also loaned an immense amount of money to various borrowers that has caused the Fed to lose money since the interest paid on the bonds the Fed bought is less than it is paying for the “ample reserves” interest to banks.
fred.stlouisfed.org
Assets: Total Assets: Total Assets (Less Eliminations from Consolidation):...
Assets: Total Assets: Total Assets (Less Eliminations from Consolidation): Wednesday Level
Warsh would not have set up a task force to “reviewing the risks and benefits of the current ample-reserves regime and the overall size/composition of the Fed’s balance sheet” if he wanted to maintain the status quo.
The Fed has stepped in quickly to tamp down potential crises, including Covid, the Silicon Valley Bank collapse and even a nascent monetary shortfall in December 2025. If the Fed stops its ample reserve policy and active interventions interest rates will rise, asset prices will fall and there could be a return of sudden financial crises.
3. Data Sources: Set up to evaluate new, contemporaneous information streams and alternative gathering methodologies to modernize economic monitoring.This is a euphemism for bypassing the key data impacting the Fed’s decisions: inflation and employment. Trump fired the director of the BLS due to an unemployment report that was higher than he wanted. Warsh has said he wants to shift inflation measurements from the CPI and PCE index to the bogus “trimmed mean index” that clips off and throws away the highest and lowest inflation outliers - but more of the highest outliers. That would give Warsh a biased inflation data statistic he could publicize to show that the Fed is controlling inflation. Hopefully the independent Fed governors would still continue to publish the real data. And the CPI better not be fudged since it is the basis for TIPS and Social Security inflation adjustments.
4. Productivity and Jobs: Tasked with studying the macroeconomic reach of general-purpose transformations, explicitly highlighting the impact of artificial intelligence (AI) on the labor force.
5. Inflation Frameworks: Assigned to re-examine the core drivers of inflation and weigh theoretical adjustments to how the Fed ensures price stability.Everyone knows that the Fed cannot “ensure” price stability since the real driver of consumer prices is fiscal stimulus (from Congress) that goes directly into consumer pockets. The Fed’s monetary stimulus mainly drives asset prices, not consumer prices.
The increase of housing prices far ahead of growth in real incomes has caused a real problem for families trying to buy a home.
fred.stlouisfed.org
S&P Cotality Case-Shiller U.S. National Home Price Index
The increase in stock prices makes many METARs feel smart and rich but it’s a dangerous bubble that could pop if the crack cocaine of free money suddenly stops. Consumer spending is 70% of our K-shaped economy. If stock prices suddenly fell the stock-owning upper leg of the K would pull back on spending, causing a classic recession.
Even the Wall Street Journal is writing about the signals of an overpriced stock market.
https://www.wsj.com/finance/stocks/all-the-money-f...
All the Money Flooding Into AI Is a Giant Warning Sign
When companies as a group turn into sellers, it’s a reasonable sign that stocks are very overpriced
By James Mackintosh, The Wall Street Journal, June 21, 2026
…
A rush of stock issuance should raise serious red flags even among those who dismiss elevated valuations.
Companies always have a choice of how to finance capital spending and takeovers. They can raise debt or issue stock (or a mix). If interest rates are low, debt is cheap for companies. Equally, if stock valuations are high, it is “cheap” for a company to issue more. Only firms in desperate need of cash sell more shares when their valuations are low, because it dilutes existing shareholders and trashes the share price…
When companies as a group turn into sellers, it’s a reasonable sign that stocks are very overpriced. Indiscriminate demand from investors incentivizes companies to step up to supply them, both with secondary offerings, like Alphabet’s GOOGL 1.17%increase; up pointing triangle recent record-breaking issue, or IPOs…
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…
When it becomes concerning, at least in my view, is when there’s a flood of fundraising, debt or equity or both. If lots of companies are raising cash to chase the same opportunity—in this case AI—there are three possibilities.
The bull case is that the opportunity is so huge it can absorb all the cash and still deliver fat profits. The bear case is that the opportunity is real but spending so much will destroy value as competition erodes margins. The deeply depressing third possibility is that companies are raising and spending so much merely because shareholders are cheering them on, and the AI claims are just wildly overhyped… [end quote]
The sales of AI services to end-users who are NOT part of the AI supply chain ecosystem is only a small fraction of the spending on the AI build-out. And even though it’s early days, there is already price-cutting among heavy-hitter competitors like Amazon and Alphabet (among others) while customers (like Uber) blow through their AI budgets early and stop orders late in the year.
Think of the boom-build-and-bust cycle of the chip manufacturers, like Intel. There’s a great demand, the company invests hugely in infrastructure, overproduces then is forced to cut prices. That’s already happening in AI and most of the data centers haven’t even been built yet.
About 40% of the SPX is the value of the high-PE tech stocks. This is a historic bubble. When the bubble bursts, margin calls will force the babies to be thrown out with the bathwater.
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Margin is at a record high and growing rapidly.
finra.org
Margin Statistics
Pursuant to FINRA Rule 4521, FINRA member firms carrying margin accounts for customers are required to submit the following customer information: the total of all debit balances in securities margin accounts; and, the total of all free credit...
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The stock market is gradually recovering from the recent drop caused by the Iran war. VIX has declined. The Fear & Greed Index is in Fear. The risk trade is neutral since the price of stocks and junk bonds are moving in tandem with the 10 year Treasury price.
USD is rising and is now slightly above the top of the past year’s channel. Copper and natgas are rising steadily. Gold and silver continue their falling trend. Oil fell to the bottom of its 2 month channel but it’s still way above the pre-2026 price. Bitcoin is bouncing along the floor.
The Treasury bond yield curve is flattening as the long yields are falling while the short end is rising. The options market predicts a 75% chance of a fed funds raise by September 2026.
The Chicago Fed’s National Financial Conditions Index (NFCI), which provides a comprehensive weekly update on U.S. financial conditions in money markets, debt and equity markets, and the traditional and “shadow” banking systems, shows steady loose conditions.
Short-term yields are driven by inflation which is rising fast. The market still has confidence that inflation will eventually be brought under control since the real yield of the 10 year Treasury is still in its channel under 2%. The10 year TIPS yield is rising which shows that investors are demanding a duration risk premium other than inflation.
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The markets are more or less ignoring the Iran developments since they change every day.
As always, the METAR is a short-term forecast. The METAR for next week is sunny. Kevin Warsh plans to buy a packet of pins but that’s in the future.
Happy Solstice!
[Bobby McFerrin - Don't Worry Be Happy (Official Music Video)]
Bobby McFerrin - Don't Worry Be Happy (Official Music Video)
Wendy
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CandleGlance | StockCharts.com
Quickly and easily view and analyze mini-charts of up to 12 different symbols simultaneously, all displayed side-by-side on a single page
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CandleGlance | StockCharts.com
Quickly and easily view and analyze mini-charts of up to 12 different symbols simultaneously, all displayed side-by-side on a single page
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Dynamic Yield Curve | StockCharts.com
Visualize the relationship between interest rates and stocks over time using our draggable, interactive yield curve charting tool.
CNN
Fear and Greed Index - Investor Sentiment | CNN
CNN’s Fear & Greed Index is a way to gauge stock market movements and whether stocks are fairly priced. The index uses seven market indicators to help answer the question: What emotion is driving the market now?
chicagofed.org
National Financial Conditions Index: Current Data - Federal Reserve Bank of...
https://www.cmegroup.com/markets/interest-rates/cm...chicagofed.org
National Financial Conditions Index: Current Data - Federal Reserve Bank of...
fred.stlouisfed.org
10-Year Real Interest Rate
10-Year Real Interest Rate
fred.stlouisfed.org
Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity, Quoted...
Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity, Quoted on an Investment Basis, Inflation-Indexed
