Kevin Warsh’s stripped-back Fed communication ‘already backfiring,’ say investors

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Or sign-in if you have an account.Chair of the Federal Reserve Kevin Warsh speaks during the news conference after the Fed decision Wednesday. Photo by Brendan SMIALOWSKI / AFP via Getty ImagesFederal Reserve chair Kevin Warsh’s stripped-back approach to communication is “already backfiring” and risks eroding the central bank’s influence over the US$31-trillion U.S. Treasury market, investors have warned.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountThirty-year U.S. borrowing costs jumped to their highest since 2007 on Thursday, despite the Fed holding its policy rates steady.Warsh vowed at Wednesday’s post-decision press conference that the central bank “will not waver” in the battle against inflation. But investors said the lack of forward guidance on where rates are going — and the lack of an explanation as to why the Fed had not raised them if inflation is a concern — had spooked the market.“Whether by intent or accident, he has let go of any air of control over the Treasury market,” said Stephen Jones, chief investment officer at Aegon Asset Management. “That’s quite a change from the desires and modus operandi of Fed chairs in the past.SUBSCRIBER EXCLUSIVE: FP West: Energy Insider brings you behind the oilpatch’s closed doors with exclusive insights from insiders every Wednesday morning.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of FP West: Energy Insider will soon be in your inbox.We encountered an issue signing you up. Please try again”Warsh’s remarks prompted a sharp steepening in the Treasury yield curve, as traders demanded more to lend to the U.S. government over the longer term on fears of rising inflation. This simultaneously pushed short-term yields lower as traders cut their bets on near-term rate rises.The 30-year yield rose as high as 5.24 per cent on Thursday, up from about 5.12 per cent before Wednesday’s announcement. The two-year yield was about 4.27 per cent, down from 4.34 per cent before the decision.The rise in long-term borrowing costs will intensify the pressure on the U.S. public finances and on companies, while also tightening conditions for households by driving up the interest rate on popular 30-year mortgages.“Warsh’s no-guidance approach is already backfiring,” said Francesco Pesole, a strategist at ING, adding that the steepening in the Treasury curve after Wednesday’s press conference “looked very much like a loss-of-confidence trade.”The gap between 30-year and two-year U.S. Treasuries jumped from about 0.8 percentage points to 0.97 percentage points, its sharpest move in almost a year.There was a large split in market bets running into the meeting, as investors struggled to decipher how the central bank would respond to a fresh surge in oil prices and U.S. inflation running above three per cent, against the Fed’s two per cent target. Traders had put a roughly 30 per cent chance on a rate increase ahead of the meeting, according to levels implied by derivatives markets.Warsh said at the conference that the reduction in forward guidance could have been a factor in interest rate pricing since the last Fed meeting in June, but added that this was “a change for the better” and the central bank was “just getting started” with its new communications strategy.He argued that a rise in real rates since the last meeting had already essentially tightened monetary policy. That left investors with the impression that the Fed was happier to let the market do the work for it, without having to raise policy rates.This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.Warsh said he understood “the desire for rolling forecasts and commentary” from the Fed’s rate-setting committee, three of whom dissented and voted for a rate rise. “But for our part, we need to observe market reaction to developments, direct and unfiltered.”Ludovic Subran, chief investment officer at Germany’s Allianz, said the Fed press conference format “doesn’t work in its current form” and was “a forward guidance instrument that now pretends not to be one.”Economists at Morgan Stanley said Warsh’s comment on wanting to take time to understand underlying economic changes “suggests the bar for rate hikes is likely higher than markets previously thought.” The bank retained its outlook for no Fed rate rises this year, as it expects inflation to fall in coming months. Markets are currently fully pricing in two rate rises by next June.But investors said the reaction in bond markets vindicated widespread warnings that the Fed’s decision to axe forward guidance would spark volatility and drive up borrowing costs.“The lesson is really what we already knew — monetary policy transmission is more orderly when central banks communicate more clearly,” said Mike Riddell, a fund manager at Fidelity International. “Deliberately communicating less means more market volatility and uncertainty.”Additional reporting by Emily Herbert in London© 2026 The Financial Times LtdNotice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.