Morgan Stanley: The Fed under Wosh's leadership may increase volatility in the U.S. Treasury market

BlockBeats News, February 3 — Morgan Stanley stated that the Federal Reserve, led by Kevin Warsh, may increase volatility in the U.S. Treasury market due to reduced public communication of its policies.

Appointed by Trump and set to succeed Powell as Chair in May, Warsh previously served as a Federal Reserve Governor from 2006 to 2011. A review of the Federal Open Market Committee (FOMC) meeting minutes from that time shows that Warsh wanted investors to form their own views on economic growth, inflation, and monetary policy.

At Morgan Stanley, Thornburg and Tobias believe that this former governor prefers a “smaller balance sheet,” which could push long-term Treasury yields higher relative to short-term yields, resulting in a steeper yield curve.

However, the bank believes that the Fed under Warsh may change its communication approach, potentially increasing investor uncertainty, which is the key point. This includes reduced interaction between Fed officials and the media, especially before FOMC meetings, and possibly canceling the “dot plot” projections or summaries of economic forecasts. (Jin10)