Warsh's Inflation Fight Sparks Market Alarm Bells

The reaction to Kevin Warsh's recent press conference has been intense, with market commentators criticizing his approach to monetary policy. In fact, some have called for a 'moron risk premium' to hedge against potential missteps by the new Fed chair.

This criticism follows a dramatic bear steepener in US rates, which some see as a sign that Warsh is struggling to control inflation. The MOVE index has risen to its highest level in over 10 weeks, indicating increased volatility in bond markets.

Bloomberg's Geoffrey Morgan and Natalia Kniazhevich argue that bond yields are a key macro fundamental, and sharp movements can have far-reaching consequences for the economy. They warn of a potential increase in correlations between assets, which could be particularly damaging during earnings season when investors price divergent corporate fortunes.

Nomura's Charlie McElligott notes that crude oil prices have been a major driver of rates, and the recent escalation of tensions with Iran has added to market uncertainty. Warsh's challenge is to reduce the inflation tail while managing expectations around rate hikes.