Warsh's 'Quieter' Fed: A Recipe for Market Volatility

At his keynote speech at Jackson Hole on Aug. 28, Fed Chair Kevin Warsh expressed his desire for a 'quieter' Federal Reserve, which would reduce market guidance and telegraphing of interest rate decisions.

This approach is a departure from that of his predecessor, Jerome Powell, who provided more explicit signals to the market.

The market took Warsh's tough talk on inflation as a sign that a rate hike was imminent, and when the Fed duly hiked rates on Sept. 16, investors reacted with modest trading volatility.

However, research suggests that less signaling from the Fed could actually increase market uncertainty and volatility in the long run.

This is because markets become accustomed to the Fed's guidance and adjust their expectations accordingly.

When the Fed provides fewer signals, markets are left with more uncertainty, leading to greater price swings.