Traders Are Doubting Warsh’s Resolve on Inflation

Traders Are Doubting Warsh’s Resolve on Inflation Markets are delivering a harsh verdict on Kevin Warsh’s performance yesterday. As the Fed chairman spoke, 30-year Treasury yields spiked, inflation expectations rose, the dollar slid, and even stocks tumbled. Taken together, they point to concern that policymakers won’t manage to curtail inflation that has run above the Fed’s target for five straight years. That’s causing several investors and strategists on Wall Street to call into question Warsh’s resolve and credibility, especially after his hawkish comments in the run-up to yesterday’s meeting. “He once again failed to specify how he intended to achieve his stridently asserted inflation resolve,” wrote JPMorgan’s Michael Feroli. “We believe this will add some urgency for the rest of the committee to act on its mandate.” While markets largely took the decision to hold rates in stride, the backlash came through during the press conference as Warsh didn’t offer a clear explanation for the move or say he would support raising rates should inflation fail to slow. At stake is Warsh’s ability to lead a committee that is gradually losing patience with high inflation. Households and businesses could also start to doubt their long-standing belief that the Fed will do what it takes to contain price pressures. Bondholders both pushed down yields on the most short-term Treasuries — a reflection of how they rapidly scaled back bets on immediate increases — and demanded higher payouts on longer-term bonds to compensate for inflation risks in the years ahead.