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Yields Jump as Markets Tighten Even Though Fed Kept Rates Steady
Summary
Chair Warsh said nominal and real Treasury yields rose materially between meetings and that markets are reacting to real-time information; he described the reduction in forward guidance as part of this dynamic.
Chairman Warsh told reporters that, although the committee left the policy rate unchanged, market interest rates have moved significantly in the intermeeting period.
"Nominal and real yields are materially higher across the treasury curve," Warsh said, adding that some increases were “among the most significant in the last 2 decades.” He suggested markets are responding to incoming data and a pullback in forward guidance rather than to committee pronouncements.
Warsh described this as a constructive change, saying market participants are learning "to play the ball, not the referee," and that the Fed will observe market reaction as one input into future policy choices. He warned, however, that the Fed will act where necessary and appropriate and that decisions still matter for the real economy.
Reporters pressed whether markets’ moves should imply a higher policy rate now; Warsh said he would not accept market moves as dictation but that market information is valuable for judging how policy affects inflation and employment.
