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One of the things that Warsh said at the press conference was that the markets should be playing the ball – the yields, inflation, stocks, employment – not the referee (the Fed). He said the Fed was not going to spoon feed the market. He also said that in crisis mode, providing guidance -spoon feeding – is prudent, but in benign moments it is not.
He is hands off. You can say he is saying the markets are better,more knowledgable than the Fed. You can say he is checking his ego at the door. He is saying the Fed Funds rate is not really important, but the yield curve is.
Is that the right way?
With the markets now showing yields higher with a steeper curve and stocks down, he may be saying, “the market is doing our work. Employment is too strong. Prices are too high, so rates are moving higher out the curve. That will slow the inflation ” That may lead to the Fed raising rates down the road, but that will have been defined by the market, not the Fed.
Stocks are now lower
- Dow industrial average -1130 points or -2.15%.
- S&P index -95.84 points or -1.29%
- Nasdaq -331 points or -1.34%
In the debt market:
- 2 year yield -4.3 basis points at 4.233%
- 5 year yield l+2.1 basis points at 4.383%
- 10 year yield +6.3 basis points at 4.667%
- 30 year yield +9.9 basis points at 5.194%
This article was written by Greg Michalowski at investinglive.com.
