Marc Chandler - The Warsh Era Begins: A Hawkish Fed & The Surging US Dollar
Summary
New Fed Chair Warsh's debut delivered a hawkish hold (no rate change but a tightening tone), with markets now pricing a full rate hike by year-end instead of cuts.
Widening US rate differentials versus Europe and Japan broke the dollar index out of its year-long range to new highs against the yen and the Canadian dollar.
August WTI crude fell from about 83.35 to 75.70, helping flatten the two-to-ten-year yield curve, but the guest warns fertilizer and pesticide shortages could lift food inflation.
The guest argues equities are priced to perfection with greed dominant, so disciplined trailing stops — not panic exits — are the right protection in a late-stage bull market.
Watch dollar–two-year yield correlations, at 20-year highs, plus Fed funds pricing near a hike and a half for the next directional cue.
Marc Chandler's takeaways
- Top takeaway The guest argues Fed Chair Warsh's debut marked a break from the Bernanke-Yellen-Powell continuity, steering back toward a Greenspan-style Fed of strategic ambiguity with minimal forward guidance.
- He notes the market read the June meeting as a hawkish hold: Fed funds futures went from about 20 basis points of cuts priced as of June 12 to nearly 38 basis points of hikes, helping lift the dollar to new yearly highs against the yen and Canadian dollar.
- He attributes the flattening 2s-10s yield curve as of mid-June 2026 partly to Warsh's hawkish tone and partly to the drop in WTI from about $83.35 to roughly $75.70, while widening US rate differentials versus Europe, the UK, and Japan support a stronger dollar.
- He sees markets as priced for perfection and vulnerable to bad news — Middle East escalation or sticky food inflation from fertilizer and pesticide supply shocks — and recommends disciplined trailing stops rather than exiting the still-intact bull market.
- He is watching the dollar index breakout above roughly 101.15 toward 102.5, and expects the market to price in more than two Fed hikes this year if US data holds up.