Fed chair Warsh's inflation stance strengthens case for long-term U.S. Treasuries, Gundlach says

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Fed Warsh bolsters Treasuries outlook

Highlights

Fed chair Warsh reiterates strong, unanimous commitment to returning inflation to 2%, signaling reduced likelihood of rate cuts if inflation stays elevated.
Warsh abstains from providing an individual interest-rate projection and signals a broader review of the Fed's communications framework.
Jeffrey Gundlach states Warsh's firmer inflation stance and focus on price stability enhance the investment case for long-term U.S. Treasuries.

Warsh signals tougher policy path

As reported by CNBC, DoubleLine Capital CEO Jeffrey Gundlach says Warsh is making clear that restoring price stability is the Fed's central objective, rather than delivering the easier monetary policy many investors once expected. Gundlach says Warsh's latest remarks suggest rate cuts are less likely if inflation remains above target.

The comments follow a Fed policy statement saying the committee will deliver price stability, language Warsh also repeats in his press conference. Warsh says the Fed's commitment to returning inflation to 2% is strong, unanimous and unambiguous, emphasizing a goal the central bank has not achieved for about five years.

Warsh also declines to provide an individual interest-rate projection in the Fed's closely watched dot plot and indicates that the central bank's communications framework is under broader review. His tone appears firmer on inflation than some investors and economists expected from President Donald Trump's choice to lead the Fed.

Bond market implications come into focus

Gundlach says Warsh's emphasis on price stability lowers the risk of overly accommodative policy that could reignite inflation and push longer-term borrowing costs higher. In his view, that strengthens the investment case for long-term U.S. Treasuries.

He says Warsh has effectively tied his credibility to bringing inflation under control, leaving less room for aggressive rate reductions. Gundlach adds that if Warsh fails to deliver an outcome that can be described as price stability, the Fed chair will face questions over the commitment he has now publicly set.

Our earlier article on the Fed’s June meeting under Chair Kevin Warsh covered how policymakers grew more cautious on inflation after an oil-driven shock, with the dot plot shifting toward higher-for-longer rates and even potential hikes. We noted that firmer labor-market projections and higher PCE inflation forecasts were narrowing the case for rate cuts, complicating expectations that Warsh would quickly steer policy toward easier borrowing conditions.

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