Kevin Warsh’s push to axe the Federal Reserve’s guidance on the direction of monetary policy could increase volatility in the Treasury market and drive borrowing costs higher, major investors have warned.
At his first Fed meeting as chair on Wednesday, Warsh said his tenure marked “a new chapter” for markets, in which the central bank would remove parts of its forward guidance — ditching some of the vital tools it has been using to point investors to where interest rates are heading.
Without a clear steer on the world’s most important central banker’s expectations for rates, investors say markets are likely to become more volatile and undergo bigger swings around the Fed’s decisions. US borrowing costs could also rise as traders demand more of a premium to offset the increased uncertainty about rates.