• In coming months if inflation falls, labor market stays stable, no further rate cuts will be needed.

• More worried about inflation remaining stubbornly high.

• If see further material cooling in labor market, cutting rates could be appropriate.

• Current policy stance may be very close to neutral, providing little restraint.

• Cautiously optimistic current policy stance will get inflation down to 2%, sustain balanced labor market.

• Not fully confident inflation is heading all the way back to 2%.

• Economic activity has rebounded strongly.

• Last year’s rate cuts were insurance against labor market cooling, additional risk on inflation.

• I anticipate progress on inflation this year; have already seen some tentative signs.

• Labor market stabilizing, downside risks have meaningfully dissipated.

• Inflation has been above 2% target for nearly 5 years.

• Should provide central clearing for Fed’s standing repo operations.

• Real Fed funds rate now sits squarely within range of neutral rate estimates.

There is the start of the Fed laying the groundwork for holding rates. That would create a real headache for Warsh.but it will all depend on the data, starting with tomorrow’s non-farm payrolls report.

At the moment, the market is sniffing out a weakening US economy and that has yields lower and the US dollar under pressure. A three-year auction just went off at 3.518%, which was fractionally below what the market was expecting.

The dollar is particularly soft today against the yen in the second day of USD/JPY selling following the election of Takaichi’s party to a super-majority in the Lower House. That strong mandate has created a mini-boom in Japanese stock markets.

Beyond the US jobs report, the market will focus on Friday’s CPI report as we try to get a sense of the direction of inflation. If jobs are weak but inflation is high, that will create a particular headache at the FOMC.