Morgan Stanley: Fed Led by Powell Could Intensify US Treasury Market Volatility
BlockBeats News, February 3rd, Morgan Stanley stated that the Fed led by Kevin Warsh may exacerbate volatility in the U.S. Treasury market due to a reduction in its policy transparency.
Warsh, nominated by Trump to succeed Powell as chairman in May, served as a Fed governor from 2006 to 2011. A review by Morgan Stanley of minutes from a past Federal Open Market Committee (FOMC) meeting showed that Warsh wanted investors to form their own views on economic growth, inflation, and monetary policy.
At Morgan Stanley, Hornbach and Tauber believe that this former governor prefers a "smaller balance sheet size," which could push up long-term Treasury yields relative to short-term yields, a phenomenon known as a steeper yield curve.
However, the bank believes that the Fed under Warsh's leadership may change its communication style, which could increase investor uncertainty, a key point. This includes a reduction in Fed officials' interactions with the media, especially before FOMC meetings, and possibly the elimination of the "dot plot" forecast or economic projections summary (FXStreet).
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