Warsh’s ‘forward silence’ risks bigger Treasury market swings, say experts
The plan would phase in a shift to six rate decisions a year, down from eight.
Federal Reserve Chairman Kevin Warsh's plan to reduce the number of interest-rate decisions annually could lead to heightened volatility in the US$32 trillion Treasury market, according to experts. Announced after the Fed maintained rates at the Oct 28 policy meeting, the plan would shift to six rate decisions per year from eight, with two reserved for strategic discussions.
This move aims to provide officials with "time and space" for deliberations, but traders view it as part of a trend toward a less predictable Federal Reserve, including a retreat from forward guidance. Smaller gaps between decisions may prompt occasionally larger rate cuts or increases, while emergency actions between meetings could fuel larger swings in short-dated notes and raise premiums for longer-term debt.
Fewer policy decisions could also limit the Fed's ability to tighten monetary policy currently, potentially benefiting short-term yields despite policy uncertainty lifting longer-term rates. Warsh's dovish tone at the press conference and the shift toward "forward silence" have contributed to a rally in shorter-dated Treasuries, while longer maturities have underperformed, steepening the yield curve.
The long-term effects of this volatility are seen as potentially significant, with experts warning that fewer decision meetings combined with less guidance could lead to larger repricings around each decision, increasing market turbulence.
Written by urgent.news from Straits Times Business's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
