Fed Chair Warsh Signals Inflation Has Peaked, Easing Summer Rate Shock Fears

Macro
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Summary · why it matters

Kevin Warsh went to Sintra and said what bond traders have been waiting to hear all summer: inflation looks like it has peaked, with oil prices cooperating. David Zervos, Chief Market Strategist at Jefferies, relayed Warsh's remarks from the ECB conference, noting the Fed Chair was optimistic on the inflation outlook as oil prices have fallen back to early March levels. Gas at the pump has dropped for eight straight weeks, a 14.4% monthly decline that directly influences consumer inflation expectations. The Russell 2000 is up 19% year-to-date, more than doubling the S&P 500's 9.36% YTD gain, reflecting a classic rate-relief trade as small caps outperform. Zervos also warned that unemployment has quietly drifted from 3.5% to 4.2% since early 2023, a slow grind that could suddenly dominate conversations.

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