Fed vs. inflation

Analysis: Fed chief's statement raises market distrust

The Federal Reserve's statement to leave the policy rate unchanged should have been a non-event. Instead, the lack of communication from the new US central bank chief Kevin Warsh caused market interest rates to accelerate more than they have in over a year and Wall Street to fall. Bloomberg's John Authers writes in an analysis.

According to Authers, the interest rate movements show that the market believes that Warsh has made a mistake that could force the Fed to make larger interest rate hikes later. "It is a clear vote of no confidence," he writes.

According to CNBC's Matt Peterson, the market's reaction raises questions about Warsh's credibility when it comes to inflation. Before taking office, he pointed to the lack of credibility of his predecessor Jerome Powell as a reason behind rising market interest rates. Warsh's new explanation that the rise reflects a strong economy does not seem to be buying the market.

Three out of twelve Fed members wanted to raise the interest rate and that group is likely to grow if inflation does not turn down. "That puts Warsh in a difficult position. After just a few months in office, his credibility risks being eroded – both in the market and within the Federal Reserve," writes Matt Peterson.

Economist: "Warsh wants to take the back seat"

The announcement from the Federal Reserve that it will leave the policy rate unchanged at 3.5-3.75 percent was not only expected but also well thought out, says Robert Bergqvist, senior economist at SEB.

- If it had been a surprise, it would have been unfortunate, he tells TT.

Regarding the new Fed chief Kevin Warsh, Bergqvist believes that two conclusions can now be drawn.

Firstly, Warsh really wants to change monetary policy. It covers everything from communication, balance sheet and data collection to the framework for the inflation target.

Secondly, the Fed chief wants to sit in the back seat and observe what happens. He does not want to share more than necessary with the market. Bergqvist is not entirely convinced that this is a good strategy.