Warsh at first FOMC: strong jobs, surge in gas prices

At his first Federal Open Market Committee meeting on June 16-17, Fed Chair Chris Warsh will confront stronger-than-expected job gains and rising fuel costs. March nonfarm payrolls increased by 178,000 and April consumer prices rose 3.8% year over year. Gasoline prices are up 28.4% year over year.

Economic data have run ahead of forecasts. The Citi Economic Surprise Index stood near 41.6 in late May, the strongest stretch of upside surprises since 2008-09. March payrolls beat expectations after forecasters had predicted a small decline; April payrolls rose by 115,000 against median forecasts between roughly 62,000 and 90,000.

Inflation in April was driven largely by energy. Energy costs were up 17.9% year over year and gasoline jumped 28.4%. The national average retail price for gasoline reached about $4.32 per gallon, roughly 54% above levels before traffic through the Strait of Hormuz was disrupted at the end of February.

Short-term Treasury yields, especially the two-year, have moved in step with the national gasoline average in recent weeks. Market pricing has shifted to include an inflation risk premium on near-term rates.

At his April confirmation hearing Warsh argued against the use of forward guidance and proposed modifying or ending the Fed’s quarterly dot-plot projections on the grounds that they can pre-commit the committee and reduce policy flexibility. He expressed a preference for a rules-based framework that explains the logic behind decisions while avoiding a specific commitment on the next move.

April FOMC minutes showed a majority of participants expected rate increases to become appropriate if inflation persistently ran above the 2% target; that meeting recorded four dissents. As of late May market pricing assigned about a 30% probability to a rate hike in 2026.

Traders and officials will watch incoming payrolls and consumer price reports ahead of the June meeting. The committee will consider recent labor-market readings, April’s CPI, and developments in global energy routes when discussing the policy path.