Warsh's Fed Sparks Market Concerns with Hawkish Hesitation

The Federal Reserve has been criticized for its handling of inflation under the new leadership of Kevin Warsh. Since Warsh's second meeting as Fed Chair in July, the US Dollar Index declined while the yield curve steepened and the 30-year Treasury yield reached a 30-year high.

This dramatic market reaction reflects investors' growing belief that the Fed under Warsh may not be as hawkish as they initially thought during Act One of his tenure at the FOMC meeting in June. The US public debt to GDP ratio remains near an all-time high, and long-term US Treasuries face a gloomy future.

Warsh has acknowledged that households and businesses have been dealing with above-target inflation for 63 months, but he has floated the idea of holding six instead of eight Fed meetings per year and opposed unnecessary forward guidance. The Communications task force appears to favor less precise and more disciplined communication from the Fed.