Federal Reserve Chairman Kevin Warsh has signaled that he wants bond investors to react to underlying changes in the US economy rather than commentary from the central bank. So far, they're doing the opposite.
Since he became chairman in May, the three largest daily moves in the US Treasuries yield curve have followed his appearances: after his two post-policy meeting press conferences, in June and July; and now after his speech at the Fed's annual conference in Jackson Hole, Wyoming.
On Friday, the gap between 2- and 30-year yields narrowed by 10 basis points in a so-called flattening move as traders ramped up bets on interest-rate hikes.
Warsh Is Moving Bond Markets
Photo Credit: (Photo: Bloomberg)
A key reason for Warsh's revamp of Fed communications is what he described on Friday as a “hall-of-mirrors problem,” where financial markets react to Fed officials' comments, and officials in turn look to markets for guidance on the economic outlook. At his July press conference, he said market participants were now “learning to play the ball, not the referee,” framing the central bank as a neutral adjudicator rather than a market mover.
“His notion from July that markets were playing the ref is clearly off-base,” said Christopher Hodge, chief US economist at Natixis. “The Fed isn't the ref, it's a huge player and the market movements reflect that reality.”
The moves speak to investors struggling to adapt to Warsh's new communications style. On Friday, Warsh warned inflation isn't meaningfully slowing and said policymakers must be confident that it is, otherwise the central bank has “work to do.” The ensuing curve-flattening move was the largest since his first press conference as chairman in June, when he emphasized his commitment to bring inflation back to target.
In July, he triggered the opposite reaction, with the curve steepening the most since August 2025. That's after investors said he failed to articulate a rationale for the committee's decision to keep rates unchanged.
“The chairman reaffirmed his expectation to offer less communication, underscoring the uncertainty the market will confront in anticipation of future messages,” said Alex Mackey, co-chief investment officer of fixed income for MFS Investment Management in Boston. “Events like today's speech are ripe for bouts of volatility.”
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)
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