New Fed Chair Kevin Warsh Sparked a "Credibility Shock" on Wall Street After His Latest Rate Decision. 3 Reasons Investors Should Care
Will Warsh be able to prove that the fight against inflation is actually going to be fought again?
Overview
The new chair of the Federal Reserve, Kevin Warsh, is having trouble getting the market to believe that he's serious about tamping down on inflation. The U.S. economy team at Bank of America said that the tepid response to his July 29 press conference was "a central bank inflation credibility shock." The S&P 500 (SNPINDEX: ^GSPC) rose 5.5% from that date through Sept. 8, but the credibility question is being priced in the bond market rather than in stocks.
The Fed had held rates steady, and Warsh refused to specify exactly what would make him vote to raise them, leading some to speculate that he might not be willing to raise them at all. Then, during a keynote speech at Jackson Hole on Aug. 28, he called the Fed's 2% inflation target "firm" and "fixed," while also admitting that inflation was running much higher than that -- a hawkish signal delivered from someone who has resolved to give the market fewer signals in advance of policy decisions.
Details
The Fed's next decision will be announced on Sept. 16. A lot could change depending on what happens next, and there are three things in particular that investors should care about here.
Source
Originally published at www.fool.com.