New Federal Reserve Chairman Kevin Warsh is deliberately reducing the forward guidance that has been a hallmark of Fed policy since the dot-com bubble, sparking what some on Wall Street call a credibility shock. Warsh believes less guidance will force investors to make better long-term choices and curb risk-taking encouraged by the so-called Fed put. At the latest meeting, rates were held steady despite high inflation, leading some to question whether Warsh is avoiding a hike to appease the President. The bond market has responded by pushing long-term rates higher, which some see as Wall Street doing the hard work it avoided under previous regimes. The key outcome for investors is increased uncertainty, which appears to be exactly what Warsh intends.
Fed holds rates steady despite high inflation, reducing forward guidance and increasing uncertainty, which may keep policy rates higher for longer.
Reduced forward guidance and steady rates push long-term bond yields higher, benefiting the yield.
