Warsh: Real Rates Surge on FOMC Deflation Signals

Warsh wants price stability yet markets call his bluff after the latest FOMC release tipped the economy into a deflationary backdrop, with real rates surging as nominal rates climb while breakeven inflation falls. The ratio of nominal rates versus breakeven inflation shows liquidity draining fast, and Warsh already flagged restrictive policy for housing, ruling out further tightening. The Fed sits behind on easing with zero chance of hikes, while a dollar breakout risks unwinding carry trades and forcing an abrupt policy reversal to avert a hard financial markets crash.