Source: Fortune
Summary
Federal Reserve Chairman Kevin Warsh’s post-FOMC conference remarks have caused unease in the bond market, despite the Fed’s decision to hold interest rates steady at 3.5%-3.75%. Warsh’s comments on above-target inflation and the tightening of financial conditions have led to rising yields on long-dated bonds. The market is also uncertain about the Fed’s commitment to its 2% inflation target and the potential for future rate hikes. Analysts and investors are questioning the Fed’s willingness to follow through on market pricing of hikes, and the lack of forward guidance has added to the uncertainty.
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The numbers tell one story.
Warsh’s comments have sparked a sell-off in longer-dated bonds, with 30-year Treasuries reaching over 5.1% and 10-year Treasuries nudging over 4.65%. The market is digesting meaningful shifts in Fed policy, including a new Fed chairman and changes in the Fed’s committees. Warsh’s reluctance to provide forward guidance has added to the uncertainty, and analysts and investors are questioning the Fed’s commitment to its 2% inflation target. The Fed’s promise to hit 2% is “vague” on when or how, which has unsettled markets. Warsh has managed to “thread the needle” by staying tight-lipped on the prospect of a hike cycle while reiterating the Fed’s commitment to the 2% inflation target.
The Fed’s actions are speaking louder than words, and it remains to be seen what it will take for Warsh to change his tune and establish credibility with markets.
Author: Evan Null
