Economists and analysts kind of lost their minds about what they heard from new Federal Reserve Chairman Kevin Warsh Wednesday. Or, more precisely, what they didn’t hear.
Warsh has elected to break with his three immediate predecessors’ efforts to make the Fed more talkative and transparent. The problem, Warsh argues, is that old approach transformed the market into a prediction engine for Fed rate decisions. Lest the Fed send markets into chaos, central bankers became obligated to follow markets’ predictions – locking the Fed into decisions even if the economy changed.
In Warsh’s parlance, the market was playing the referee, not the ball.
But the lack of chatter isn’t sitting well with markets.
The Dow had its worst day in 15 months Wednesday. The 30-year US Treasury yield rose to its highest level in 19 years. The benchmark 10-year Treasury yield is very nearly at its highest level of Trump’s second term. Stocks are bouncing back just a bit Thursday. Bonds are not.
