JPMorgan economists criticized Fed Chair Kevin Warsh’s recent FOMC performance, saying a lack of forward guidance and shifting inflation targets created uncertainty and destabilized bond markets.
Calling the incident the most troubling since 2012, economists said Warsh’s recent press conference raised concerns about the central bank’s inflation-fighting credibility. As a result, the bank moved forward its forecast for the next U.S. interest rate hike, now expecting it as early as December 2026 instead of the second half of 2027, reported MarketWatch on Monday.
Economist Michael Feroli expects the Federal Reserve to prioritize its inflation-fighting mandate, leading him to forecast a 25-basis-point rate hike in December. However, he noted “there’s clearly a risk” that the FOMC could raise rates as early as September.
Feroli is concerned that Warsh’s strong stance on inflation was weakened by the lack of clear forward guidance, limited explanation for keeping interest rates unchanged, and his doubts about continuing to use the PCE price index as the Fed’s primary inflation measure.
JPMorgan economists warned that uncertainty over Warsh’s approach could unsettle markets, especially if investors fear Fed review task forces lack independence and simply support his policy views. Bond markets are also concerned that Warsh could alter the Fed’s inflation benchmark, potentially changing how price stability is measured.
“The market didn’t like what it heard, with the curve sharply steepening and breakeven inflation compensation rising as the chair spoke,” the economists said.
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Economists Question Warsh’s Stance
Not just JPMorgan, but economist Justin Wolfers also criticized Warsh’s leadership approach, saying reduced guidance and explanations have created greater uncertainty around monetary policy. Former Fed economist Claudia Sahm also criticized the Fed’s statement for failing to address recent inflation and labor market developments, calling the lack of changes in its data discussion unusual.
The Federal Reserve kept interest rates unchanged, but bond markets reacted with a sharp selloff on Wednesday, which pushed the 30-year Treasury yield to its highest level since 2007. Economist Peter Schiff said the move highlighted a disconnect between Kevin Warsh’s statements and policy actions. Schiff argued that despite Warsh’s repeated claim that inflation is a policy choice, his recent actions effectively allowed inflation to persist.
Fed Ready to Hike if Inflation Stalls
On Monday, New York Fed President John Williams stated that he expects inflation to continue declining in the second half of the year and into next year, with disinflation trends supporting a return toward the Fed’s 2% target.
However, he said the central bank remains prepared to raise interest rates if inflation does not move sustainably lower. Williams backed the Fed’s decision to keep rates unchanged, saying current policy is well positioned to guide inflation back to target.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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