Fed Chair Kevin Warsh Can Raise Interest Rates Using Two Nontraditional Methods

MacroDigital Finance Impact 4
โดย The Motley Fool·US·Read original
Summary · why it matters

Federal Reserve Chair Kevin Warsh can raise interest rates without adjusting the federal funds target rate by removing forward guidance from FOMC statements and deleveraging the central bank's balance sheet. Warsh axed forward-looking guidance beginning with his first meeting as chair in June, which has made the bond market more cautious amid inflation running at a three-year high of 4.2% in May and 3.5% in June, pushing the 30-year Treasury yield to a 19-year high. He also criticized the Fed's bloated balance sheet, which held $6.75 trillion in assets as of August 5, and favors meaningfully paring down the portfolio to make the central bank a passive market participant. Selling trillions of dollars in Treasury bonds could push up long-term yields and make lending costlier, though he would need support from his colleagues to shrink the balance sheet. The latest FOMC meeting saw three members dissent in favor of a quarter-point rate hike, the first such early dissent in 56 years, underscoring inflation concerns.

Impact on stocks 3

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％Effective Federal Funds Rate
EFFR
▲ PositiveMonetaryrelevance

Fed Chair Warsh's removal of forward guidance and balance sheet deleveraging signal tighter policy, raising the effective federal funds rate.

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