Wall Street got the message loud and clear.
Fed Chairman Kevin Warsh is shaking up the institution tasked with keeping inflation in check.
Investors hoping for dovish signals got a different message from Warsh.
After the Federal Reserve left interest rates unchanged, the new Fed chair used his post-meeting press conference to emphasize the central bank’s commitment to returning inflation to its 2% target.
“We thought he was a dove who favored lowering the federal funds rate,” Ed Yardeni and his team wrote following Warsh’s press conference. “Instead, he hammered home a strict, orthodox message on inflation with a strong commitment to price stability.”
The Fed’s written policy statement was notably brief. Warsh used the presser to announce five task forces that will examine everything from regulatory scope to balance sheet operations.
“It’s clear to me that Kevin Warsh signaled there’s a new sheriff in town,” Kevin Mahn, chief investment officer at Hennion & Walsh, told Yahoo Finance on Friday. “There’s going to be new operating rules for the Fed going forward.”
Even the future of Fed press conferences appears open for debate. Warsh suggested they should be reserved for occasions when policymakers have something meaningful to say.
“I think we’re in a new era,” EY-Parthenon chief economist Gregory Daco told Yahoo Finance. “A new era of communication with much less communication coming from the Fed chair, much less communication coming from the Fed in general.”
The lack of forward guidance may be something Wall Street needs to adjust to. Stocks fell during Warsh’s press conference but recovered on Friday.
The “dot plot,” which shows where Fed officials expect interest rates to go, has also come into question. Warsh, a critic of the tool, declined to submit his own projection, though he said he had “encouraged” his colleagues to continue doing so.
The rest of the participants submitted theirs, with nine expecting at least one rate hike this year. Eight see rates remaining unchanged through year-end, while one still expects a cut.
“There’s no unanimity there,” Mahn said. “So for people to come out of that presser and out of that meeting thinking there’s going to be more hawkish tones and rate hikes on the way, I don’t think we’re there yet.”
Read more: The Fed’s dot plot explained
Wall Street is focusing on the US-Iran deal, which involves reopening the Strait of Hormuz. That will help inflation cool as oil prices continue to decline.
Goldman Sachs analysts said that while the risk of a rate hike went up on Wednesday, their base case is for unchanged interest rates this year.
