The Federal Reserve chairman has all but abandoned forward guidance, leaving traders confused and questioning whether he’s an idiot or genius.
It was, according to economists at JPMorgan, the single most troubling presentation by a Federal Reserve chairman in more than a decade of press conferences given by those at the very top of the US central bank.
And, for Australian investors, it all took place shortly after 4am. That’s when Kevin Warsh, Donald Trump’s handpicked Fed chairman, took to the podium for a remarkable press conference that continues to reverberate through financial markets five days after it was presented.
It is a seismic shift that has left bond traders wondering whether they are now being governed not by order but by chaos. Long-term interest rates are soaring to multi-decade highs, leaving economists and investors pondering whether Warsh, an ex-Morgan Stanley banker, is a genius or an idiot.
“Fed chairs have been hosting these press conferences since 2012, and this week’s was, in our opinion, the most troubling yet by a long shot,” Michael Feroli, the economist at JPMorgan, told clients after the conference.
“Warsh’s performance surprised and, based on the market reaction, disappointed many observers – ourselves included.”
Here is the issue. Warsh simultaneously said he was prepared to act to tame inflation, despite the Fed making no effort to do so and giving no indication about its intention. That uncertainty has pushed bond rates higher across the globe, with investors worried that borrowing costs will only go up.
The US 30-year bond rate – now just below 5.25 per cent – is the highest it has been for two decades, while the interest rate curve has steepened sharply as short-term and long-term rates move in the opposite direction.
Source: https://www.afr.com/markets/debt-markets/kevin-warsh-s-invisible-man-routine-has-bond-markets-all-at-sea-20260803-p60kym