Source: Fortune.com
Summary
Federal Reserve Chairman Kevin Warsh’s comments during a post-meeting press conference sparked a selloff in Treasuries and raised concerns about the Fed’s commitment to price stability. Warsh’s failure to signal an intention to follow through on his vow to fight inflation has led to a “central bank inflation credibility shock.” Economists believe that Warsh’s remarks may force a hawkish outcome, with other members of the Federal Open Market Committee taking action to deliver on the institution’s mandate.
Our Reading
The numbers tell one story.
Warsh’s comments rattled nerves, and his openness to other inflation gauges and tools to fight inflation sparked a selloff in Treasuries. The yield curve may indicate the Fed’s perceived commitment to reining in inflation. A flattening of the curve would suggest that markets believe the Fed will do what it takes to meet its mandate, while a steepening of the curve would indicate the Fed is behind the curve.
Warsh’s tough talk needs to be backed up with actual details on how to make inflation go lower to maintain credibility.
