Former Kansas City Fed president on expectations for Kevin Warsh as new Fed chair

Summary

Tom Hoenig, former Kansas City Fed president, discusses the inflationary boom, yield curve steepening, and the challenges awaiting new Fed chair Kevin Warsh. He emphasizes the importance of Fed independence and clear communication on price stability, and notes growing fiscal deficits pressuring yields.

• Hoenig describes an 'inflationary boom' since the Fed cut rates, with strong fiscal policy and the Iran war adding pressures.
• He notes the yield curve is steepening, which itself tightens financial conditions.
• Hoenig expects Warsh to leave short rates unchanged and let the curve steepen to contain inflation.
• He warns that if inflation becomes more troublesome, Warsh would raise rates to demonstrate independence.
• The U.S. deficit is growing at $500 billion per quarter, creating upward yield pressure.
• Hoenig stresses the Fed must not manage the yield curve for the Treasury or administration.