Fed Chair Kevin Warsh has sent investors a message: When it comes to tamping down inflation, he means business Heading into Wednesday’s Federal Reserve decision, investors were hoping an interest-rate hike from the central bank could steady a shaky bond market and take some pressure off stocks. Unfortunately, that’s not what happened. While U.S. stocks and bonds initially rallied after the Fed confirmed the rate hike and released its latest batch of projections, both markets ultimately finished the day lower.
By the time the closing bell rang, the Dow Jones Industrial Average had fallen by more than 600 points. The 10-year Treasury yield inched higher, finishing the day above the key 5% threshold despite a reprieve from surging crude-oil prices . Bond yields move inversely with prices, rising as prices fall, and vice versa.
During Fed Chair Kevin Warsh’s postmeeting press conference, Warsh insisted that the central bank was serious about driving inflation back to its 2% target. Don’t Short Yourself offers weekly money tips to help you earn it, stack it and grow it. I would like to receive updates and special offers from Dow Jones and affiliates.
I can unsubscribe at any time. The market appeared to take the chair at his word — unleashing a bout of volatility in markets, as investors wondered whether the Fed will ultimately deliver even more rate hikes than its latest batch of projections suggest, said Gene Goldman, CIO at Cetera Financial Group. A few months ago, investors were worried that Warsh’s tough talk on inflation, paired with a lack of actionable follow-through by the Fed, could hurt the central bank’s credibility and ultimately weigh on markets.
But by insisting that the Fed is indeed serious about driving inflation back down to 2%, Warsh put investors in another uncomfortable position. They now need to contemplate exactly how far the Fed will go to get inflation back under control, as well as what a longer Fed hiking cycle might mean for markets and the economy. For now, the path forward looks as murky as ever.
Whatever happens next will likely hinge on the outcome of the conflict with Iran, which has dragged on into a seventh month with no end in sight. During the early days of the war, some oil experts were warning of a risk that oil prices might climb as high as $200 a barrel. While that extreme scenario never materialized, oil prices have climbed back above $100 a barrel — well above prewar levels — and few expect them to fall significantly unless Washington strikes a deal with Tehran to end the war.
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