Warsh's Inflation Warning Falls Flat as Market Reacts with Alarm

The US central bank's second meeting under new leadership saw little change in interest rates, but a significant market reaction to Federal Reserve Chair Kevin Warsh's comments.

Before the meeting, Reuters surveyed 104 analysts and found that all believed the Fed would keep rates steady. However, the market indicated a 'reasonable chance' of a rate hike, leading to a disconnect between expectations.

Rates were left at 3.5-3.75%, with long-term US borrowing costs rising significantly after the meeting. The 30-year bond yield jumped to 5.2%, its highest level in 19 years, while the 10-year yield reached 4.7%.

Chair Warsh's refusal to provide forward guidance on future rate decisions was seen as a departure from his predecessor's approach. He stated that inflation is too high and needs to be brought down, but did not indicate when or how this would happen, leading some to question his commitment to the 2% target.

The market reaction was significant, with a $1 trillion drop in stock value on the day of the press conference. Bond market experts were left scratching their heads as Chair Warsh appeared to suggest that the recent rise in yields had already addressed the issue, leaving little need for further action.