Newsletter · · Ashutosh Agarwal

Hawkish Fed Minutes Meet Dovish Data as Warsh Stays Silent - The Fed & the Front End - Week of July 13, 2026

Rates and macro newsletter for the week of July 13, 2026. The minutes from Kevin Warsh's first meeting showed nine officials now pencil in a hike this year versus zero in March, yet a soft jobs report and cheaper gasoline pushed near-term hike odds sharply lower, leaving a genuinely two-sided debate in which the loudest voices leaned toward hold or cut.

The Fed & the Front End

Week of July 13, 2026: Hawkish Fed Minutes Meet Dovish Data as Warsh Stays Silent

This was the week we finally got to read the fine print. The minutes from Kevin Warsh's first meeting as Fed chair came out, and they landed like a split decision: the committee itself is leaning toward raising rates, nine of the policymakers now pencil in a hike before year-end, up from exactly zero back in March, even as the chair himself says almost nothing and quietly points to inflation measures that argue for patience. Then the data cut the other way. A soft June jobs report and a drop in gasoline prices pulled the market's bet on a rate hike sharply lower. And midweek, the on-again ceasefire with Iran broke down again, pushing oil back up and muddying the disinflation story everyone was leaning on. The result is a genuine two-sided argument, with the loudest voices this week actually on the "don't hike" side, and a growing suspicion, voiced by more than one economist, that Warsh is a dove wearing a hawk's costume. Here is what was actually said, and by whom.

TL;DR

  • The June Fed minutes were the event of the week: a committee that has turned noticeably hawkish (nine officials now expect at least one hike this year, one jumped from zero hikes to three), even though Warsh scrapped forward guidance and won't say what he'll do. The market read it as "a rate increase at the next one or two meetings is more likely than I thought."
  • But the odds of an actual near-term hike fell, not rose. After the weak June jobs print, the probability of two hikes this year dropped from about 70% to under 30%, and betting markets now put roughly a 79% chance the Fed simply holds at its late-July meeting.
  • The debate is real and roughly balanced, but the "hold or cut" camp was louder and deeper this week, MUFG, LPL, Bloomberg Economics, Nomi Prins, Danielle DiMartino Booth and market veteran Jim Paulsen all argued the labor market is too weak and inflation too supply-driven to justify hikes. The hawkish case rests mainly on the committee's own dots plus a few strategists, and on oil, which turned back up midweek.

What's new

The Fed minutes revealed a committee itching to hike, and one that changed its mind fast. The single biggest development was the release of the minutes from the June meeting, Warsh's first as chair. On CNBC (replayed on The Paul Barron Crypto Show, Jul 9), the striking detail was the speed of the shift: "We had nobody on the committee in March that saw a rate hike by the end of the year... We go to June and now nine people see a hike by the end of the year, including one person that moved from no hikes to three hikes." The minutes also, for the first time, explicitly named AI as an inflation driver, quoting participants that "ongoing strong demand for AI infrastructure would likely sustain upward pressure on prices for technology, products, and electricity," while some members countered that AI productivity gains "would eventually reduce production costs... though they noted that effect would likely take time to materialize" The Paul Barron Crypto Show (Jul 9). On the Financial Times' Unhedged podcast, columnists Rob Armstrong and Katie Martin called the minutes "anodyne" but "sprinkled with these comments" that "the risk of inflation is more to the upside" and that "some members of the committee made the case for higher rates", enough that Armstrong said it made him think "we're more likely than before I read them to get a rate increase at the next one or two meetings" Unhedged (Jul 9).

"A dove in hawk's clothing." The sharpest read on Warsh came from veteran economist Ethan Harris on Moody's Talks - Inside Economics (Jul 10), whose episode was literally titled "A Dove in Hawk's Clothing." Harris argues Warsh's tough talk on price stability is a cover story: "It's not about being intrinsically hawkish or dovish. It's about having a dovish narrative that justifies dovish policy", the narrative being that AI-driven productivity will "do all the dirty work for us" on inflation, so the Fed can eventually cut. But Harris says the rest of the committee "completely disagrees with him," and he expects them to win: he puts "better than even odds" on a hike in September "and then probably again in December," for two hikes this year. His reasoning is that the neutral rate is higher than the Fed thinks, he pegs the neutral nominal funds rate at 4% versus today's 3.50%–3.75%, so current policy is actually "modestly easy," and "I don't think they needed to do the cuts last year." He also flagged that New York Fed President John Williams gave a speech this week that "was pretty much a refutation of his [Warsh's] AI perspective," saying AI is inflationary in the short run Moody's Talks - Inside Economics (Jul 10).

The market moved the other way, hike odds fell after weak jobs. Even as the committee turned hawkish on paper, traders pulled back their hike bets. Former Goldman Sachs banker Nomi Prins, speaking on the ITM Trading Podcast (Jul 8), noted that the FedWatch probability of two hikes this year had dropped "from 70%... down below 30%" after the soft June jobs report, with unemployment "as high as it was during the pre-COVID times." Her base case is no hikes, with a possible 25-basis-point cut before the November midterms if oil stays down and inflation trends from about 4% toward 2.9%, but "it's not going to happen at the July meeting" ITM Trading Podcast (Jul 8). Danielle DiMartino Booth of QI Research, a former Dallas Fed staffer, made the same call on The Julia La Roche Show (Jul 9): "I don't think the next move is going to be a hike." She cited betting-market data putting a "79% chance the Fed maintains the rate" in July, with only about 20% expecting a 25bp hike and roughly 76% seeing no cut at all in 2026, and pointed to a labor force participation rate at a 50-year low and record job insecurity as reasons the Fed can afford to wait The Julia La Roche Show (Jul 9).

The Street's rates desks say the hike pricing is simply wrong. Two sell-side houses used their podcasts to fade the market's hawkish tilt. On The MUFG Global Markets Podcast (Jul 10), the bank's strategist argued there is "about 40 basis points of tightening" priced through the first quarter of next year, but "the next move from the Fed will actually be a cut," because inflation should retrace toward 2% as rents cool (with a lag into the official data), tariff effects fall out of the year-over-year comparison, and energy disinflates. He noted headline CPI is running at 4.2% but the Dallas trimmed-mean measure, the underlying gauge Warsh himself likes, is only 2.3%, adding, "I wouldn't tag him as a hawk" The MUFG Global Markets Podcast (Jul 10). LPL Research's Lawrence Gilliam and Jeffrey Roach, previewing their Midyear Outlook (Jul 7), landed on a "prolonged pause": they came into 2026 expecting three cuts, now expect none, and are "fading" the market's "pretty aggressive rate hike schedule," on the view that "the bar for a rate hike is still a lot higher than it is for a Fed on hold." They see the 10-year Treasury range-bound at 4.00%–4.50% (it sat around 4.48%), core PCE dropping below 3% only by December or January, and unemployment drifting up to 4.5%–4.6% by year-end from 4.3% LPL Research (Jul 7).

Warsh has torn up the communications playbook, and not everyone thinks that's wise. The clearest walk-through of the new regime came on The Flip Side (Jul 9), where Chairman of Research Ajay Rajadaks laid out what Warsh actually did at the June meeting: "he scrapped forward guidance, slashed the post-meeting statement down to 132 words... and refused to submit his own dot plot projections." Warsh's argument is that guidance had "turned markets into a mirror", investors were pricing Fed-speak instead of the economy. Rajadaks agreed with the diagnosis but warned about the cost: with no guidance and no stated reaction function, "return premium in bonds... goes up. And rate volatility costs more. Higher term premium means higher mortgage rates, higher corporate borrowing costs, wider credit spreads." His worry: "the first time Warsh surprises the market with a move nobody saw coming... the repricing won't be gentle" The Flip Side (Jul 9).

The debate

This remains a genuinely two-sided argument, but this week the "hold or cut" camp had both the numbers and the microphone, while the "hike" case leaned heavily on the Fed's own dots and on oil.

The hawks (hike). The strongest hawkish evidence is the committee itself: nine officials now project a hike this year, per both the minutes and Peter Kinsella, head of UK investment services at Union Bancaire Privé, who told Bloomberg that "the overall momentum on the FOMC is veering towards a rate hike this year, which was a big shift", though he stressed the market has only priced "one and done" Bloomberg Daybreak: US Edition (Jul 10). Ethan Harris wants two hikes (September and December) on the argument that policy is too easy Moody's Talks - Inside Economics (Jul 10). And Chris Whalen of Whalen Global Advisors, on The Julia La Roche Show (Jul 11), thinks one hike is essentially locked in for political-credibility reasons: he believes "the White House has probably green-lighted at least one rate increase" so Warsh isn't forced into an awkward dissent, with the economy "running hot" on a deficit near 7% of GDP. His base case: "probably one before Labor Day." He cited former St. Louis Fed President Jim Bullard's warning that a lone hike is unusual, "if you're going to do one, you're going to do more", and holds a longer-term double-digit-inflation thesis The Julia La Roche Show (Jul 11).

The doves (hold or cut). The counterweight was louder. Market veteran Jim Paulsen, on Excess Returns (Jul 11), laid out the recession-warning case with data: averaging the payroll and household surveys, "they average out at a big goose egg", essentially zero net job creation over the past year (payrolls up 0.3%, household employment down 0.3%), while part-time work is rising and the labor force is shrinking, "things that only occur in the middle of recessions." He noted housing starts are "about as bad as it was in the worst of the housing crisis in 2009" and the Atlanta Fed's growth tracker had fallen to 1.25% for the quarter. His conclusion: "we have a supply-side based inflation problem and raising rates is not going to improve the supply. It will hurt demand" Excess Returns (Jul 11). Bloomberg Economics' Stuart Paul made the institutional version of the point ahead of this week's CPI: June headline inflation should tick down (gasoline fell about 9% in the month), and "the market is over anticipating a hike before year end" because the price pressures are coming from "idiosyncratic factors" like airfares and the chip shortage, not from wages, "we don't have any sort of inflation pressures coming from the job market" Bloomberg Daybreak: US Edition (Jul 10). Economist Michael Darda struck the same patient tone on Bloomberg Surveillance (Jul 7): with unemployment at 4.2%–4.3% ("same number that we had two years ago") and long-term inflation expectations "very muted," he expects "pretty significant disinflation" as the oil shock unwinds and thinks the Fed will be "pretty patient on any prospective tightening" Bloomberg Surveillance (Jul 7). And FX trader Brent Donnelly, on Forward Guidance (Jul 8), summed up the skeptical middle: Warsh's hawkishness is "performative... every single Fed chair when they start tends to be more hawkish," and his core view is that you end up "in December with Fed funds unchanged", with the important caveat that "if payrolls is really strong, I would be a little bit nervous about the July meeting" Forward Guidance (Jul 8).

The trades in play

  • Own duration into disinflation. LPL is telling income investors to "keep calm and carry on", build a high-quality bond portfolio yielding roughly 5%–6% in Treasuries, corporates and mortgages while staying underweight corporate credit (spreads at all-time tights) and neutral elsewhere, on the view that yields stay range-bound (10-year 4.00%–4.50%) LPL Research (Jul 7). MUFG frames the same idea in FX: if inflation retraces as they expect, "the rates curve is overpriced and that should bring the dollar lower" The MUFG Global Markets Podcast (Jul 10).
  • Long the dollar while rate differentials favor the US. Brent Donnelly notes the market has flipped from "a couple cuts priced" to "a couple hikes priced," which pulls carry and momentum flows into the dollar, though he thinks the "debasement trade" (long gold, short dollar) has capitulated and could be near a turn Forward Guidance (Jul 8).
  • Gold on the eventual pivot. Nomi Prins argues the recent 27%–28% gold pullback was a paper-market, quarter-end shakeout and holds a $6,000-by-year-end target, on lower inflation, a growing Fed balance sheet (which she calls quiet, "secretive" QE) and continued central-bank buying ITM Trading Podcast (Jul 8).
  • Get more cautious on equities. Jim Paulsen turned defensive: his "33 charts" point to weakening growth momentum, a re-tightening of financial conditions since the Iran hostilities (10-year up ~70bp off its sub-4% lows, dollar up 5%–6%, oil higher), and historically the worst stock-market damage from an oil spike arrives after oil peaks, not during Excess Returns (Jul 11).

Read-throughs

  • Less guidance means more front-end volatility, whatever the next move. The through-line across the week is that Warsh's silence is itself the story. On Unhedged, the FT's Rob Armstrong argued the volatility may be deliberate: "for Kevin Walsh, the confusion and the volatility is somewhat the point", a philosophy that the Fed had "anesthetized" markets and needs to let them price risk again. His co-host Katie Martin countered that bond traders "don't know what the hell's going on," which is "the first taste... of outbreaks of volatility that are possibly slightly larger than they necessarily need to be" Unhedged (Jul 9). The Flip Side's warning is the concrete version: no stated reaction function pushes up term premium, and therefore mortgage and corporate borrowing costs, even before any rate actually moves.
  • The whole debate now hinges on one question about AI. Whether the Fed hikes or eventually cuts increasingly depends on whether AI is inflationary (more demand for chips, electricity and construction now) or disinflationary (productivity later). Morgan Stanley chief US economist Michael Gapen framed the stakes on Thoughts on the Market (Jul 9): if AI is labor-augmenting like the internet, the economy stays near full employment and "we stay in an interest rate environment that's certainly higher than it was during the post-GFC period"; if it's labor-displacing, it triggers easing. He estimates AI's contribution to US GDP growth rising from about 0.05 percentage points in 2024 to 0.43 points by 2027, and comes down on the optimistic side Thoughts on the Market (Jul 9). This is exactly the fault line inside the FOMC: Warsh bets productivity rescues inflation; the committee, and Williams' speech this week, aren't convinced.

What changed this week

Two things. First, we finally saw inside the June meeting, and the minutes confirmed a committee that has swung hawkish, nine officials now expect a hike this year versus zero in March, which nudged the market's sense that a hike at "the next one or two meetings" is live. Second, and pulling the other way, the resumption of US-Iran hostilities pushed oil back up (Brent near $80, from close to $70), reviving the inflation worry that a soft June jobs report and falling gasoline had just started to ease. Net-net, the near-term pricing is still dovish, betting markets put a ~79% chance of a hold at the late-July meeting, and the odds of two hikes this year have fallen from ~70% to under 30%, but the medium-term tilt stayed hawkish, and nothing is definitively priced until December. The next tests come immediately: June CPI is due, and Warsh delivers his first congressional testimony next week, where, as DiMartino Booth put it, we'll see "if he remains cool as a cucumber when he's grilled by members of both parties."