Federal Reserve's credibility shaken as market doubts its commitment to price stability

MacroDigital Finance Impact 4
โดย Jiji Press·Read original
Summary · why it matters

The credibility of the Federal Reserve is wavering. While Chair Warsh has pledged to achieve price stability, he has not touched on specific measures, leading the market to question his seriousness about fighting inflation. With persistently high prices driven by factors such as elevated crude oil prices amid worsening Middle East tensions, speculation lingers that the Fed may be forced to raise rates at the September Federal Open Market Committee meeting. At the July meeting, the Fed held rates steady for the fifth consecutive meeting, but although Warsh emphasized at his press conference that he would not tolerate inflation, he remained silent on the policy outlook, giving the impression of being opposed to rate hikes and somewhat undermining market confidence. The New York Times reported on July 31 that Warsh is considering reducing the number of FOMC meetings from the current eight per year, raising the risk of a vicious cycle in which the market has even fewer opportunities to glean clues on monetary policy, further jeopardizing credibility. A future concern is a rise in inflation expectations due to the Fed's declining credibility. If inflation becomes difficult to control and the Fed fails to raise rates, there could be a scenario where internal dissent over the erosion of credibility intensifies.

Impact on stocks 2

Others± Mixed · 2 stocks
％Effective Federal Funds Rate
EFFR
▲ PositiveMonetaryrelevance

Market doubts Fed's commitment to price stability, raising odds of a rate hike in September, which would push the effective federal funds rate higher.

％United States Government Bond 10Y
US-10Y
▼ NegativeMonetaryrelevance

Fed credibility concerns and potential rate hikes could increase long-term yields, but the immediate effect is ambiguous; however, the article suggests rising inflation expectations and policy uncertainty, likely pushing 10Y yields up.

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