New Fed Chief Kevin Warsh Slashes Rate Statement To 132 Words, Citing Greenspan As Model
According to ABC News, new Federal Reserve Chair Kevin Warsh used his first press conference Wednesday to reverse decades of central bank transparency, slashing the Federal Reserve’s interest-rate statement to 132 words from 341 in April and dropping all forward guidance about future moves.
Warsh believes markets have grown too dependent on Federal Reserve hand-holding, citing former chair Alan Greenspan, whose vague remarks kept investors guessing, as his model. Markets reacted immediately. The S&P 500 dropped 1.2% Wednesday, the 10-year Treasury yield jumped to 4.49%, and the 2-year yield rose sharply to 4.16%.
“Forward guidance in general has served to suppress volatility and anchor market expectations,” said Bespoke’s George Pearkes, warning the shift could push mortgage rates roughly a quarter-point higher.
This matters because clear Federal Reserve guidance has helped keep borrowing costs lower for nearly two decades, and reversing it risks real volatility for everyday consumers and businesses.
Economist David Andolfatto agrees forward guidance has flaws, but warns Warsh needs a contingency plan, not just reassurance, for handling the next crisis.
Check out our previous coverage of the Federal Reserve and US markets here.
