Warsh changed the Fed’s flight plan. Here’s why we shouldn’t panic…

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Every pilot takes off with a flight plan.

Before the wheels leave the runway, he knows where he’s going, how he’ll get there and what conditions to expect along the way.

But as any good pilot will tell you, once the plane is in the air, sometimes you have to adapt.

The sky can get dark. Disturbances can arrive. Rain can pound your windshield. Sudden crosswinds can force a pilot to adapt in real time.

Folks, that’s exactly what happened this week. Kevin Warsh moderated his first meeting of the Federal Open Market Committee (FOMC) as Fed Chairman.

Wall Street wanted a clean flight plan. Preferably one that points directly towards lower interest rates.

This is not what we got. Instead, the Fed kept interest rates steady… The “dot chart” showed a bigger split than Wall Street wanted… This Fed would not feed investors the same forward guidance they were accustomed to, Warsh explained.

The result? Late sales today…

Now, I’ve heard from a few semi-panicked people wondering if the flight is in trouble. But this is what I told them:

Our stocks were actually high. In fact, we are largely immune to anything that causes panic on Wall Street.

So, on the day Market 360I’ll explain why Wall Street panicked over Warsh’s first Fed meeting…why I think this panic is misplaced…and why the real story now isn’t a dot plot, inflation numbers, or anything else that has Wall Street worried.

It’s earnings – backed by fundamentally outperforming stocks.

At the top of this charge are the stocks associated with the artificial intelligence revolution. So, in conclusion, I’ll tell you what comes next in this powerful growth story – and how you can profit.

What did the Fed decide — and what Wall Street did wrong

The Fed did exactly what Wall Street expected: it left key interest rates unchanged.

The Federal Open Market Committee voted unanimously to keep the federal funds rate in a range of 3.5% to 3.75%.

This part was not surprising. What scared Wall Street was the message underneath the decision.

The latest dot plot showed that Fed officials are more divided than investors had hoped. Many members now see the possibility of raising interest rates later this year, and the Fed has removed language suggesting a rate cut.

As you can see in the image above, nine Fed officials now expect interest rates to rise this year, while eight expect interest rates to stay the same. Only one official expects interest rates to fall.

OK.

That was enough to cause turmoil in parts of Wall Street. But I think the reaction missed the bigger picture.

Yes, the latest inflation reports were a little hotter than expected. Producer prices rose 0.4% in May, which translates to an annual rate of 4.9%, up from 2.5% in April. Meanwhile, the Consumer Price Index rose 0.3% in May, or 3.7% year over year, up from 2.2% in April.

But the inflation panic right now is largely linked to energy prices. Central banks cannot fix food and energy prices by raising interest rates.

So, when oil prices rise due to geopolitical turmoil in the Middle East, higher oil prices do not magically pump more oil out of the ground. Moreover, after a preliminary agreement was reached between the United States and Iran, crude oil prices are almost lower than they were before the conflict began.

People, I can’t fix stupid.

Just as the European Central Bank was wrong to raise interest rates recently, the Fed will be wrong to tighten policy in response to temporary energy-induced inflation.

The truth is that the inflation pressure that frightened everyone has already begun to ease.

Treasury yields are also falling. Market prices fall because inflationary pressures subside.

That’s why I’m still holding out for rate cuts later this year, even if I’m in the minority right now.

What Warsh revealed

Now, I want to address what Kevin Warsh does. Because this wasn’t just a routine Fed meeting.

Warsh is trying to reshape the Fed from the bottom up. It will take some time.

It started with analysts. It looks at how the Fed collects data, how it writes reports, how it prepares its Beige Book surveys and how it builds its economic models.

This is important, because for too long the Fed has relied on outdated thinking about inflation. The old Fed was based on demand-driven inflation – the idea that if GDP rises too quickly, inflation automatically follows.

But this is not the world we live in today.

Warsh said he doesn’t believe AI will create meaningful inflation. In fact, because it produces productivity gains, it may well be Deflationary In the long term.

That’s why the Fed needs better models. Needs better forecasting. It should stop being a dog’s tail and start being a dog’s nose.

Warsh has already ended the Fed’s old approach to forward guidance. In other words, Wall Street is no longer handed a detailed flight plan.

And frankly, that’s how it should be.

A good pilot doesn’t stand on the loudspeaker every two minutes to explain why he adjusted altitude or turned three degrees to the left.

He doesn’t narrate every thought from the cockpit. Unless there is a real reason to talk, he flies off.

To set the tone, Warsh didn’t even provide a Fed dot plot forecast.

He even mentioned in his press conference that there will not always be a press conference after every FOMC meeting, unless there is a need for it.

In short, Warsh is laying the groundwork for a different kind of Fed. A Fed that says less and keeps its promises, giving itself more room to adjust when the weather changes.

Block out the noise – and enjoy the ride

So where does that leave investors?

In my view, the first Warsh meeting did not close the door to lowering interest rates. But she made one thing clear: Investors shouldn’t expect the Fed to give them a simple flight plan.

I understand why Wall Street is getting nervous.

Warsh was no longer given easy money. The blob plot seemed more extreme than investors had hoped. The Fed did acknowledge that inflation is largely temporary and energy-driven.

But investors need to look beyond the immediate disruptions. What matters now is that we sit back and enjoy the ride.

This is not the time to panic. We continue to enjoy a tremendous earnings environment, with the S&P 500 poised to average more than 20% earnings growth for the second straight quarter.

This is a time for growth and prosperity.

Because over the past few weeks, while the market has been worrying about everything from Iran to the Fed or how SpaceX’s IPO is going, I’ve been watching our stocks continue to rise.

That’s why I recently recorded a Special offer Shows you how I think investors should prepare for the next step in this bull market.

As you can see, SpaceX is probably making headlines right now. But I think Elon Musk’s biggest impact on the market is in the field of artificial intelligence.

This means artificial intelligence factories. Data centers. Memory chips. Energy systems. Cooling infrastructure. And the companies that power the next great computing infrastructure.

This is where I see the real money being made.

So, while Wall Street panics about the Fed… and retail investors chase the SpaceX IPO… I want you to focus on the companies that are providing the next phase of the AI ​​boom.

This is not a Tesla. They are not SpaceX.

It’s the companies powering the data center revolution that I believe could define the next several years of market leadership.

Click here to watch my full presentation now.

sincerely,

Louis Navellier

editor, Market 360