Trading Desk Talk

Tired of waiting

In the small coastal town of Antigonish, Nova Scotia, The Trews created a rock track that now captures the hearts of market participants. While the town and band are less well known, “Tired of waiting” is a fitting song for investors who had been teased for months about the identity of the next Chair of the Federal Reserve. The Trews, for example, posit that the market has “Altered expectations, [with] long anticipation, everything is changing, I’m the same and aging. I’m tired of waiting.”

The wait, however, is over. In a post to Truth Social, President Trump announced Kevin Warsh as his pick to succeed Jerome Powell. Warsh’s background includes a mix of Wall Street and public service: After graduating from Harvard Law School and working for Morgan Stanley for seven years, Warsh was hired by George W. Bush as an economic advisor in 2002, before being nominated for the Fed’s Board of Governors in 2006.

At age 35, Warsh became the youngest person to ever serve on the Board. He remained a Governor until 2011. Later, Warsh was an economics fellow and lecturer at Stanford University, as well as a member of the Panel of Economic Advisors to the Congressional Budget Office, before becoming an economic advisor to Trump. Warsh is considered Wall Street-friendly and pro-rate cuts. He will now face a Senate hearing and approval process.

Separately, but in a similar vein to our title, we will wait to see if lawmakers finalize the tentative deal to prevent a partial government shutdown. The deal, which includes temporary funding for the Department of Homeland Security and limits on the tactics used by Immigration and Customs Enforcement (ICE), now faces a Senate vote—and, if modified, another House vote. Given Congressional gridlock, perhaps the most likely scenario is another government shutdown—though one that is unlikely to cause major disruption.

Nothin’

Just when we thought Axl Rose was done creating music with monetary policy undertones, he releases a new song, “Nothin’.” Rose’s opening lyrics are a teaser: “There’s nothin’ I could see [to change the FOMC’s mind on the horizon].” Admittedly, the ensuing guitar riff overshadows the second half of the verse, so we may have to speculate on Rose’s conclusion. But either way, the mantra holds: The much-anticipated meeting of the Federal Open Market Committee came and went with a whole lot of nothin’.

Here are key takeaways from the Fed’s interest-rate decision last Wednesday:

• The FOMC voted 10 to two to leave its benchmark interest rate in a target range of 3.5% to 3.75%.
• Fed Governors Christopher Waller and Stephen Miran voted against the decision, voting instead to lower rates by a quarter point.
• The Fed removed language from its previous statement that noted “downside risks to employment rose in recent months.”
• The Fed upgraded its view of the U.S. economy to say that available indicators suggest that economic activity “has been expanding at a solid pace,” while repeating that inflation “remains somewhat elevated.”
• The Fed tweaked its description of the labor market, noting that “job gains have remained low” and that the jobless rate has “shown some signs of stabilization.”

Overall, the tone of the meeting was in line with market expectations and pricing reactions were muted. The FOMC broadly upgraded its assessment of the U.S. economy and now is putting equal weight between employment and inflation risks—which likely results in a firmer “hold” stance, instead of “ease.” Nevertheless, it was a bit peculiar for the committee to publish signs of stabilization when the trend of job gains seems to be going in the wrong direction. Figure 1, for example, charts the annual growth in nonfarm employment since the 1960s.

Figure 1 illustrates that 1) nonfarm payroll growth is slowing, 2) job gains tend to slow before declining outright, and 3) once job losses begin, they snowball quickly. Though job creation in the U.S. has been decelerating, a point the Fed already conceded, the labor market may be a little worse than the Fed suggests—as Figure 2 (which focuses only on the past five years) highlights.

While employment has yet to breach negative-growth territory, it is certainly nearing it. And late-stage slowdowns in hiring are extremely common for mature economic expansions (Figure 3).

With the economic landscape now opaque at best, the FOMC will also be ushering in a new leader at a time when the Fed’s independence is widely seen to be under threat from the White House. Some say that Warsh aligned himself with the president in 2025 by arguing publicly for lower interest rates, going against his longstanding reputation as an inflation hawk. Others point to the decline in the job market at the time as a reasonable—and non-political—justification for lower rates.

Either way, Warsh’s nomination doesn’t guarantee a change in policy at the Fed. Interest rates are set by a majority vote of the 12-member FOMC, which is composed of seven Fed governors and five of the 12 presidents of the regional Fed banks. As it stands, that voting committee is penciling in only one rate cut for 2026, per the Fed’s “dot plot.” One thing is certain: Monetary policy will maintain its place in the spotlight for the foreseeable future, at least until Taylor Swift announces her nuptials date.

FROM THE DESK

Agency CMBS — After a relatively slow start to 2026, new issue Fannie Mae DUS originations have settled in the $1 billion/week range. Last week, about $1.15 billion new issue DUS traded at spreads that were generally four to five basis points (bps) wider, week over week. Fannie Mae MBS volume is noticeably moving from the five-year structures that dominated the past three years to seven- and 10-year structures, thereby taking advantage of more spread compression on longer maturity paper. Ginnie Mae project loan MBS volumes also seemed to pick up a bit last week—good news for hungry investors. Ginnie Mae spreads were five to six bps tighter, week over week, pushing Ginnie Mae note rates to 2023 levels.

Municipals — AAA tax-exempt yields decreased slightly at the front end of the curve and were flat thereafter on a week-over-week basis. While the housing and healthcare sector continue to remain relatively quiet from a new issuance standpoint, many investors are concentrating in the intermediate part of the yield curve (i.e., seven to 20 years). In this range, investors can lock in elevated rates, while not going too far out on the yield curve. Municipal bond funds had a fifth consecutive week of inflows, totaling $2.06 billion ($6.53 billion year to date), $485 million of which was directed to high-yield funds.

The information contained herein, including any expression of opinion, has been obtained from, or is based upon, resources believed to be reliable, but is not guaranteed as to accuracy or completeness. This is not intended to be an offer to buy or sell or a solicitation of an offer to buy or sell securities, if any referred to herein. Lument Securities, LLC may from time to time have a position in one or more of any securities mentioned herein. Lument Securities, LLC or one of its affiliates may from time to time perform investment banking or other business for any company mentioned.