Warsh’s Sintra Debut: Four 2008 Veterans, Encircled in a “Battle Against Inflation”

June 29, Sintra, Portugal.

The European Central Bank's annual central banking forum opened. Central bank officials and economists from around the world flocked to this coastal town west of Lisbon, with the usual agenda: inflation, interest rates, geopolitics.

But the spotlight wasn't on today. It was on July 1.

On July 1, four central bank governors shared the stage. The lineup was routine—the Fed Chair, ECB President, Bank of England Governor, and Bank of Canada Governor. Half of the G7, sitting together every year.

Bloomberg gave this table a name in its preview, unrelated to monetary policy. "A Reunion of the 2008 Financial Crisis Generation."

Kevin Warsh, who had just been sworn in as Fed Chair six weeks earlier, was in his thirties in 2008. A former Morgan Stanley M&A banker, he became a Fed governor and gained Bernanke's trust because he understood how Wall Street operated. After the crisis erupted, he worked closely with Wall Street figures to devise solutions.

Next to him sat Lagarde, then France's finance minister, acting as a firewall in the G7 and G20, fighting to prevent the U.S. crisis from spreading to Europe.

Bailey was the Bank of England's chief cashier, leading the UK's bank bailouts.

Macklem was Canada's deputy finance minister, representing Canada in the G7 and G20.

Four people who fought the front lines in 2008, 18 years later each sitting at the helm of their country's central bank. Their opponents back then were liquidity freezes, bank runs, Lehman Brothers.

Now sitting across the same table were: U.S. CPI at 4.2%, Japan's interest rate at a 31-year high, the Bank of Korea just turning hawkish, and Europe's inflation refusing to recede.

The same tools, but their direction reversed 180 degrees.

"The President sent me to cut rates"

Warsh was appointed by Trump. Sworn in in May.

Trump's reason for choosing him was very clear: cut rates. A public fact that didn't require digging through history—over the past few years, the president repeatedly pressured his predecessor Powell on social media, saying rates were too high and dragging down the economy.

On June 17, Warsh chaired his first FOMC meeting. The result was a unanimous vote to hold rates at 3.50% to 3.75%. No surprise; markets had already expected that.

The surprise was what he did.

He rewrote the Fed's statement. The original 300-plus words were cut to about 130. He removed all forward guidance. At the press conference, he said: "Forward guidance is not suitable for the current policy environment." He added: "This statement gives you only the facts, to the best of our judgment."

Not enough. He announced at the press conference the creation of five special task forces: Fed communication policy (including revisiting the quarterly Summary of Economic Projections, which makes markets guess for half a day), the balance sheet, data sources, productivity and employment, and the inflation framework. His exact words: "Start directly from first principles, ask hard questions, examine current practices, and consider alternatives."

Then the dot plot came out.

Eighteen of the 19 FOMC participants—with only one exception—expected rates to either stay flat or move higher by the end of 2026. One expected a cut.

Who was that one expecting a cut? Nobody knows, because Warsh did not submit his own projection.

He is the first Fed chair in over 30 years to leave a blank in his first dot plot. CNN's headline: "Warsh Promises New Policies, While His Colleagues Focus on Hikes, Not Cuts."

Trump sent him to cut rates. The data pointed squarely in the opposite direction.

4.2%

CPI at 4.2%. May data. Target is 2%.

Core inflation wasn't as scary as the headline—excluding food and energy, the increase was much milder. This gave the FOMC an excuse to hold off on a rate hike for now, but the Iran conflict pushed up the risk premium on oil prices through the Strait of Hormuz. If energy costs continue to spill over into other prices, policy pressure in the second half of the year becomes unavoidable.

Warsh said one thing at the press conference: "We will achieve price stability. We have both the ability and the determination to meet our 2% inflation target. This commitment is strong, unanimous, and unequivocal. This is a statement we've not made clearly enough over the past five years. We are going to fix it."

"Not clearly enough over the past five years"—that was a pointed denial of the Powell era.

After his remarks, the interest rate futures market notably increased its pricing for a rate hike within the year. If inflation does not surprise to the downside, Warsh could face two rate hikes in his first year in office.

He was sent to cut rates.

Those around him are tougher

Warsh is not alone. When he sits down in Sintra on July 1, the people on his left and right speak even more harshly than he does.

The Bank of Japan raised rates to 1% on June 16, with a 7-to-1 vote. The highest level since 1995. Ueda said after the hike: "There is a risk that inflation exceeds the 2% target." The meeting summary was even more hawkish than the vote. A country that spent 30 years fighting deflation is now facing the risk of inflation expectations breaking upward.

Around the same time, the Bank of Korea released its semi-annual Financial Stability Report, with a clear change in tone. Previously, in the Bank of Korea's documents, "inflationary pressures" didn't rank in the top three—it cared more about exports and exchange rates. Now inflation is number one.

Lagarde's ECB has shifted from the rapid march of 2023-2025 to a data-dependent mode. But services inflation and wage growth have locked in the space for rate cuts. At her recent press conferences, she has repeatedly said one thing: "We are not on a pre-set path." — The meaning is clear: don't make rate cut expectations for us.

Bailey's Bank of England is trapped in the most stubborn services inflation among the G7. Wage growth has been slow to decline. Bailey has been criticized by the market for "moving too slowly" countless times over the past two years; he doesn't want to make that mistake again.

Macklem was the first among the four to hike rates and the first to hint at a pause. But the resilience of Canada's housing market—the wave of mortgage renewals pushing up household spending—keeps him from truly pivoting dovish.

Not a single central bank dares to say "inflation is over."

Why they're all moving in the same direction

One reason is Iran. The cost of oil tanker transit through the Strait of Hormuz is driving up global energy prices. Not just the U.S.—Japan is heavily dependent on Middle Eastern oil, Europe's reliance on the Middle East has increased since the Russia-Ukraine war, and South Korea's manufacturing energy costs hit export competitiveness directly. A regional conflict has given global central banks a shared anxiety about inflation.

Another is wages. While core inflation is crawling slowly, no major economy has seen a decisive slowdown in wage growth. U.S. hourly earnings are still above 4%, and eurozone negotiated wages have only inched down slowly after peaking in 2024. This reminds all central bank governors of the same thing: the stagflation of the 1970s. Back then, everyone kept saying "inflation is transitory" until it became institutional.

There's also something few discuss: 2028.

Samsung and SK Hynix just announced nearly 2,000 trillion won in investment plans. Global semiconductor giants' capital expenditure is collectively heading toward historic highs. AI data centers are being built so fast that even power companies can't keep up. Once these projects are fully underway, the demand for steel, cement, power equipment, and labor will be concentrated in one to two years.

Among the five task forces Warsh established, one is named "The Role of Productivity and Employment in an Era of Transition." What is he looking at? He's not looking at today.

The blank dot

Why didn't Warsh submit his own rate projection in June?

If he filled in a dot for a hike, he would stand directly opposite the president who appointed him. If he filled in a dot for a cut, his own statement "price stability, no retreat" would become empty words.

He chose the smartest way: leave it blank.

But Sintra is not Washington. This is not domestic U.S. politics. Sitting across from him are Lagarde, Bailey, Macklem—old comrades from 2008—as well as global economists and analysts. On such an occasion, he might express his true judgment more frankly than at the FOMC press conference.

If his wording carries even a hint more urgency than in June—even a single word difference—global markets will reprice immediately.

July 1: Warsh speaks.

July 2: U.S. June nonfarm payrolls.

Mid-July: U.S. June CPI.

The June dot plot was deliberately left blank. On the Sintra stage, he can no longer leave it blank.

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