On Tuesday, Kevin Warsh appeared before the Senate for his nomination hearing for the Fed Chair. The biggest takeaway is Warsh’s desire to “reform” the Fed. Based on his appearance, reform seems to cover the following three areas:
- Public Communications: Warsh stated clearly that he doesn’t believe in forward guidance. This seems to be a stark departure from prior Fed members, who presumed that the more the markets knew what the Fed was thinking, the less likely policy actions would shock the markets. Taking a step back from forward guidance could result in stock and bond market volatility, as investors are less clear about the future path of interest rates.
- Economic Models: Warsh is not comfortable with the Fed’s current inflation models. He seems to advocate a trimmed-mean inflation reading. Trimmed mean models strip out the outliers with the intention of filtering out one-off price swings that can distort inflation readings. As we share in the graphic below, the trimmed mean is less volatile. At 2.33%, it is also running about half a percentage point below the headline .
- Fed Balance Sheet: He has advocated against QE since the GFC, despite voting for it as a Fed member during the crisis.
Regarding current monetary policy, Warsh believes is lower than official indicators state. We have noted this as well with the Truflation data. He acknowledges that while the inflation path is trending lower, “there’s more work to do.” Further, while he may be open to slightly, he came off as hawkish as he wants to reduce the Fed’s balance sheet. To wit, consider the following quote:
QE is reverse Robin Hood. It’s policy that steals from the poor, to give to the rich.
GE Vernova Continues To Beat Expectations
stock opened nearly 10% higher after the company handily beat earnings expectations, posting EPS of $2.06, almost 10% above estimates. Revenues beat as well, and forward guidance was increased from already optimistic levels. Importantly, their order backlog grew to $163 billion, representing about four times their current quarterly revenue. GEV stock has risen by nearly 200% over the last year due to its growth surge.
GEV is a primary beneficiary of the AI boom, as it makes the equipment that generates, transmits, and stores electricity, such as gas and wind turbines, as well as grid infrastructure. The quest for power for the massive expansion of data centers is driving outsized demand for its products. The following quote sums up GEV’s unique positioning with the AI boom nicely:
“The companies that sell the physical infrastructure for AI data centers are seeing demand faster than they can raise capacity”