Stocks Sink, 10-Year Yield Reclaims 5% as Warsh Delivers His Hawkish Show

Federal Reserve Chair Kevin Warsh spent his first post-hike press conference reiterating the Fed’s battle against inflation, and stocks gave back the entire session’s advance while he did it. “Today’s action starts to show we are serious about this,” Warsh said. “And we will deliver on the price stability objective, and as the statement said, we will do it on a timelier basis.” “Inflation is a choice, and today we took a step in delivering it,” he added. ‘I Am Not In The Forward Guidance Business’ Asked whether Wednesday’s quarter-point hike marks the start of a sequence, Warsh shut the door on the premise. “This won’t surprise you, I am not in the forward guidance business,” he said, calling the move “a sober decision, serious decision, responsible decision” and declining to prejudge what follows. His justification for the hike was the argument he debuted at Jackson Hole: policy was never tight to begin with. “I would be hard-pressed to describe broad financial conditions as restrictive,” Warsh said, adding the view “was widely shared by the Committee.” The increase was not a move into restrictive territory but the removal of “a dose of accommodation.” Trump, Independence And Why Bond Yields Are Rising Warsh turned down three separate invitations to discuss President Donald Trump, who has repeatedly demanded lower rates. “I don’t have anything for you on discussions with the President,” he said, adding that “independence is a two-way street” and that the Fed would “stay in our lane” while others handle trade and fiscal policy. On whether a 90% market-implied probability had effectively made the decision for him, Warsh pushed back: “Sometimes the market tries to prejudge our outcomes… but today was our decision.” Explaining the climb in long-term yields since the July meeting, he offered three drivers: a strengthening economy, competition for capital from hyperscalers funding the capital expenditure boom, and geopolitics. He described the 10-year Treasury as “the most important asset in the world.” Markets Heard Warsh By 3:10 p.m. ET the S&P 500 — tracked by the SPDR S&P 500 ETF Trust (NYSE:SPY) — had fallen 0.8% from its pre-meeting level to 7,550, having been up 0.4% before the decision. The Dow Jones Industrial Average dropped 1.3% to 51,475, the Russell 2000 lost 1.4% to 2,846, and the Nasdaq 100 slipped 0.8% to 28,993, breaking back below 29,000 after printing a session high in the minutes immediately after the statement. The front end of the curve did the repricing. The 2-year Treasury yield climbed roughly 11 basis points from about 4.60% just before the announcement to 4.71%, its daily high. The 10-year pushed back above the 5% threshold to 5.01% after trading as low as 4.96% at midday, while the 30-year held at 5.35%, little changed in the session. Gold completed a violent round trip, sliding 1.4% to $4,285.56 an ounce after rising 1.4% at $4,360 before the decision — a swing of nearly three percentage points. The U.S. dollar index rose 0.5% to 99.85, nearing 100. Bitcoin (CRYPTO: BTC) held firm, up 0.9% at $76,020. Photo: Shutterstock