Warsh's Fingerprints
Minutes decisively hawkish
Warsh’s debut Minutes show him tightening and de‑risking the Fed’s language while launching a five‑track review of policy governance and communications — a deliberate narrative reset executed without touching the policy rate.
But he also had his fingerprints on several other areas.
Participants suddenly coalesce around shortening the FOMC statement, stripping out the inherited easing bias, and reframing how the public interprets the Fed’s language — exactly the kind of compression, de‑hedging, and narrative discipline Warsh has long advocated.
The Committee’s execution section then shows Warsh’s imprint becoming policy, with members formally removing the dovish tilt and elevating a price‑stability‑first message, all while Warsh simultaneously launches five task forces to overhaul the Fed’s communications and governance architecture.
Hawkish Minutes
Still, these Minutes were substantially more hawkish.
For example, members expressed concern about inflation accelerating. The hawkish tilt in the meeting was evident in the staff revising its outlook on the hawkish side, and participants emphasizing breadth, AI-driven price pressures, and a dual-mandate balance tilted decisively toward inflation vigilance — all of which mark a meaningful shift in the Fed’s reaction function.
Add in an active hike argument as early as June, an unusually even hawk–dove split on the dots, and the removal of all dovish language from the statement, and the overall read is a Committee leaning materially more hawkish than the hold decision alone would suggest.
The LLM score of the Minutes indicates that the current hawkish tone is close to that seen in 2022, a significant shift (see Figure 1). While the Treasury market did not move materially, the odds for rate hikes are shifting again.
Figure 1: Hawkish LLM score of the Minutes
Source: FedWatch LLM
As such, the market odds for July are back closer to the 40% threshold, where (based on observations previously), most Fed members would signal the meeting is ‘live’ such that a policy move may happen. The prediction markets rose to 20% from 10-15% before the Minutes were released.
If the Fed wants to pull the trigger, it has market expectations “primed,” even though a fair bit of forward guidance has been pared back (see LLM output in table 1).
The yield curve did not flatten bearishly in response to the Minutes, despite their hawkish tone.
But market conviction is growing that the Fed could raise rates between now and December, reflecting expectations that inflation cannot moderate quickly amid a fluid Iran conflict, reversing the disinflationary trend in inflation expectations (see Figure 3).
Figure 2: Market odds shifting again (%)
Source: CME, Kalshi
Figure 3: Inflation expectations reversing (%)
Source: CME, Truflation, Cleveland Fed
Table 1: Forward Guidance chopped
Source: Claude, Gemini