Fed Press Conference: Warsh Praises CapEx and Improves Market Sentiment

Inflation and Monetary Policy

• Long-term process: Inflation problems lasting more than five years cannot be cured in nine weeks.

• No flexibility on target: The Fed is determined to deliver price stability – there is no talk of a "soft" inflation target. At the same time, however, Warsh himself again gives no answers as to how he intends to act.
• Readiness to move: If necessary and appropriate, the committee will not hesitate to take action.

The End of the Forward Guidance Era

• No forecasts: Today's statement deliberately avoids forecasting further rate movements. Warsh strongly criticizes forward guidance.
• New role for the central bank: Market participants must learn to "play the game, not play the referee." Investors' attention shifts directly to hard economic data.
• Fed out of the spotlight: The situation where the central bank does not have to constantly be in the markets' spotlight is, in Warsh's opinion, a change for the better. On the other hand, it is worth noting that the Fed previously acted as a market stabilizer, although Warsh's words today on CapEx may somewhat improve sentiment.

State of the Economy and the Bond Market

• Economic resilience: The American economy shows impressive resilience, even in the face of recent shocks.
• Labor market and inflation: Job growth keeps pace with the growth of the labor force, but inflation remains elevated compared to the 2% target.
• Higher yields: Nominal and real Treasury yields are noticeably higher across the curve.

Technology Sector and Capital Expenditures (CapEx)

• Investment leap: The rapid increase in capital expenditures in the high-tech sector (high-tech CapEx) is astonishing and noteworthy.
• Foundation for growth: CapEx outlays prepare the ground for future economic growth.

Atmosphere within the FOMC

• Constructive discourse: Despite the presence of dissenting voices advocating for rate hikes, discussions within the FOMC are described as collegial and constructive.

How to Interpret the Fed Chief's Words?

Hawkish Rhetoric Without Specifics – Official Farewell to Forward Guidance

Warsh's words on inflation sound tough and uncompromising (a reminder of the lack of leniency for the 2% target or the lack of easy solutions). However, this harsh-sounding rhetoric is not accompanied by any firm declarations or a calendar of future decisions. Warsh explicitly signals a break from traditional forward guidance. The Fed is shedding responsibility for manually steering investor expectations and forcing the market to become completely data-dependent. Investors are to look at macroeconomic readings, not search for hidden meanings in the words of central bankers.

Positive Signal for Technology and Investment (CapEx)

A very significant and bullish accent of the statement was the approach to investment expenditures in the technology sector. The stock market had recently been strongly concerned about huge capital expenditures (CapEx) on AI infrastructure and new technologies, treating them as a risk of cash drain without a quick rate of return.

Warsh assesses this trend as unequivocally positive: he sees higher CapEx not as a threat or a bubble, but as a key foundation for future productivity and long-term economic growth. Such an opinion from the Fed gives the green light to tech giants, removing some of the narrative about "burning capital."

In response to his words, US100 neutralizes the full decline, raising hopes for a rebound of US100 above 28000 points. If MSFT and META results are good, there is a chance for a positive closing of contracts for the first time in 6 sessions.