New York
Kevin Warsh wasted no time putting his stamp on the Federal Reserve in his first meeting as chairman.
The central bank on Wednesday released a shorter interest-rate statement; Warsh skipped adding his own forecast to the so-called dot plot; and in his press conference Warsh announced five new task forces to bring in even more changes.
It’s all part of his plan to shift how the Fed communicates with the outside world – a major change from the central bank’s more recent style.
“It’s clear that Chair Warsh plans to run the Fed differently than what Wall Street has grown used to over the past eight years (under Jerome Powell),” Bret Kenwell, US investment strategist at eToro, said in a note. “Investors will adapt, but there may be some growing pains along the way.”
Markets are still figuring out what this means – and how to trade on it.
“With the new sheriff in town… markets are scrutinizing everything, every detail,” said Brett Ryan, senior US economist at Deutsche Bank, ahead of the meeting.
Stocks fell, short-term bond yields jumped and the US dollar strengthened after the meeting on Wednesday. Two-year US Treasury yields surged to their highest levels in over a year after nine Fed members indicated a rate hike by year-end is warranted.
Even before he took over, Warsh signaled his preference for less communication from the Fed. One of the task forces he announced on Wednesday will be focused on communications, he said.
“I think financial markets perform best when they react to incoming data,” Warsh said. “I think financial markets work less efficiently when they ask a question, ‘How will the Federal Reserve react to that incoming information?’”
That could all make for choppy markets for a while as traders learn to understand Warsh’s view of inflation, the economy and the institution he leads, analysts noted.
“Markets will have to get used to a difficult transition to the new Fed era,” Krishna Guha, vice chairman at Evercore ISI, said in a note.
Warsh is taking over as Fed chairman with stocks near record highs, bond yields above pre-Iran war levels, inflation rising and a labor market that appears to be stabilizing.
Treasury yields have climbed in recent months because of rising oil prices and expectations that central banks will need to hold interest rates steady or even raise rates to tamp down resurgent inflation. In April, the Fed’s preferred gauge of inflation rose to its highest level since 2023.
Investors will be keen to see if Warsh’s Fed can rein in inflation. Meanwhile, markets will be looking for more insight on the chairman’s proposed changes.
“Will these task forces be agents of regime change, or just more commissions to rehash old debates?” Michael Feroli, chief US economist at JPMorgan Chase, said in a note. “Presumably we’ll learn more in coming weeks.”
