Warsh's Low-Interest-Rate Stance Worries Corporate America

Corporate bosses are growing increasingly worried about the stance taken by Kevin Warsh, Federal Reserve official, on interest rates. Despite no change in the short-term interest rate at his second Fed meeting, corporate America is concerned about the impact of this decision.

The main worry is not inflation itself but rather the steepness of the yield curve, which reflects the difference between short-term and long-term bond prices. Warsh's decision to keep the Fed Funds rate steady may actually steepen the yield curve further, affecting long-term interest rates that matter more in the economy.

According to C-suite executives, a modestly higher uptick by Warsh would show he's serious about inflation and help suppress long-end of the curve. One CEO of a sizable financial-services firm said, 'If he wants long rates to go down, he should be raising short-term rates because the long end of the yield curve is more important than the Fed Funds rate.'

Warsh's reluctance to raise interest rates may stem from his desire not to antagonize President Trump, who has been fixated on the Fed Funds rate. Trump wanted Powell out as chair even before his term ended in May.