Bonds Tell Warsh What They Think of His Changes

Ironically, one of Warsh's comments in today's press conference was that market movement is the most important source of information for the Fed. At the same time, the market was effectively saying that it was also fond of hearing what was on the Fed's mind, and if the Fed is going to stop sharing those thoughts, the market was going to cry about it. This certainly wasn't the whole story as the hawkish dot plot did about half the damage well before the press conference. One could also argue that some traders may have expected Warsh to do something to push back against that Hawkishness. Instead, he did very little apart from reference various task forces that would be working on several projects. In general, the lack of transparency and the absence of even a semblance of forward guidance led the market to rapidly price in a higher risk premium in both stocks and bonds. Bottom line, markets said "if you aren't going to do anything to push back on that hawkish dot plot, we're gonna go ahead and assume rate hikes are more likely."