Warsh's Interest Rate Dilemma Sparks Credibility Shock on Wall Street
New Federal Reserve Chairman Kevin Warsh has faced criticism for his handling of interest rates. His latest decision to keep rates steady sparked a 'credibility shock' on Wall Street, according to Bank of America's U.S. economy team. The team noted that the market did not respond positively to Warsh's July 29 press conference.
The S&P 500 rose 5.5% from that date through September 8, but the bond market is pricing in the possibility of higher inflation rates. This could have significant implications for investors and borrowers alike.
Warsh's speech at Jackson Hole on August 28 was seen as a hawkish signal, with him calling the Fed's 2% inflation target 'firm' and 'fixed', while also acknowledging that inflation is currently running higher than that.