Bank of America warns Fed Chair Warsh's communication gap risks economic pressure

MacroDigital Finance Impact 4
โดย TheStreet·US·Read original
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Bank of America economists Aditya Bhave and Mark Cabana warn that Federal Reserve Chair Kevin Warsh's lack of clarity on the central bank's reaction function is raising risk premiums and acting like a tax on the economy. They argue that while reducing forward guidance on specific rate decisions may be reasonable, Warsh has not provided enough detail on which inflation gauges he watches, how he defines underlying inflation, or how far inflation can stray from the 2% target before prompting a policy shift. This uncertainty has contributed to a jump in long-term Treasury yields, inflation expectations, and term premiums following the July Fed meeting, which BofA says reflects market doubt rather than confidence in the Fed's strategy. The bank rejects the theory that Warsh is deliberately allowing bond market tightening to do the Fed's work, noting that the yield move includes heightened inflation expectations that signal greater policy uncertainty. BofA expects 75 basis points of additional rate hikes in 2026, bringing the federal funds rate to 4.25%-4.50%, with core PCE inflation staying above 3% this year and underlying inflation near 2.5%, making clarity on the Fed's reaction function even more critical.

Impact on stocks 3

Financials▼ · 1 stocks
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BofA economists warn Fed Chair Warsh's communication gap raises risk premiums and acts like a tax on the economy, increasing uncertainty.

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