Warsh Says Fed Is ‘Just Getting Started’ As Bond Yields Soar
By CU Today Staff —
WASHINGTON— Federal Reserve Chair Kevin Warsh defended his decision to sharply limit the central bank’s guidance about future interest-rate moves, arguing that the resulting rise in market borrowing costs shows investors are responding more independently to economic conditions rather than waiting for direction from Fed officials.
The comments followed the Federal Open Market Committee’s decision Wednesday to leave the federal funds rate unchanged at 3.5% to 3.75%. Three policymakers dissented in favor of an increase, while rising inflation concerns pushed the 30-year Treasury yield above 5.2%, its highest level since 2007, and widened the divide between short- and long-term borrowing costs, according to Reuters.
“Market participants are learning to play the ball, not the referee, and market prices will continue to respond in the direction and magnitude they see fit. This is, in my view, a change for the better, and we're just getting started,” Warsh said.
His approach marks a break from the extensive forward guidance used by recent Fed leaders and appears likely to produce larger market swings as investors attempt to determine how the central bank will respond to inflation and employment data. Reuters previously reported that investors were preparing for a less predictable Fed after Warsh removed forward guidance from his first policy statement in June.
Warsh also indicated that the Fed would not raise its benchmark rate merely because Treasury yields are rising, maintaining that policymakers will make decisions based on economic conditions rather than follow market movements. His comments suggest he intends to remain steadfast in limiting communication even if the strategy increases volatility, but analysts have warned that markets may struggle to produce reliable signals without a clearer understanding of the Fed’s policy reaction, according to Reuters.
Originally reported by CU Today.