Is Data Dependence the Problem? Fed Chairman Kevin Warsh's Fatal Mistake That Caused Market Panic | Claudia Sahm

Summary

Claudia Sahm reviews Fed Chair Kevin Warsh's first FOMC press conference, highlighting poor communication, loss of market confidence, and a sharp bear steepening of the yield curve that sent stocks into panic. She critiques data dependence, the pause in policy due to an internal framework review, and argues the Fed should be cautious on rate hikes given supply-side and AI-driven inflation uncertainties.

• FOMC held rates at 3.50–3.75% with three dissents for a hike.
• Chair Warsh's press conference failed to clarify policy triggers, causing long-end yields to spike.
• The yield curve steepened dramatically as 30-year rates rose, triggering an equity selloff.
• September rate hike probability collapsed from ~90% to ~50%, signaling lost credibility.
• Sahm criticizes the Fed's framework review pause as inappropriate and a source of policy paralysis.
• She sees AI as a demand-side inflation factor, complicating the inflation outlook.
• Despite elevated inflation, she advises rate-hike caution to avoid unnecessary job losses.