1 hr. ago
Instead of directing financial markets with its policy moves, Federal Reserve Chairman Kevin Warsh wants the markets to inform the central bank.
"Financial market prices are probably the most important source of information to guide central bankers," Warsh said during a press conference on Wednesday. "But when all the financial markets are doing is reflecting back what we've said, then we're taking the most important source of information, and we're being blind to it."
Warsh said he wants the Fed to create a system where those blinders come off and the markets follow data they efficiently deem reliable.
"He wants to have financial markets help him see what they're thinking without biasing their opinion," said Wil Stith, senior bond portfolio manager at Wilmington Trust. "He wants markets to give [central bankers] a fresh read on risk, economic weakness potential, and inflation as opposed to all that feedback [being] biased by what the Fed has been telegraphing constantly."
That means stripping so-called forward guidance, a communication tool that signals the central bank's potential next move based on how the economy unfolds.
"Financial market prices are probably the most important source of information to guide central bankers," Warsh said during a press conference on Wednesday. "But when all the financial markets are doing is reflecting back what we've said, then we're taking the most important source of information, and we're being blind to it."
Warsh said he wants the Fed to create a system where those blinders come off and the markets follow data they efficiently deem reliable.
"He wants to have financial markets help him see what they're thinking without biasing their opinion," said Wil Stith, senior bond portfolio manager at Wilmington Trust. "He wants markets to give [central bankers] a fresh read on risk, economic weakness potential, and inflation as opposed to all that feedback [being] biased by what the Fed has been telegraphing constantly."
That means stripping so-called forward guidance, a communication tool that signals the central bank's potential next move based on how the economy unfolds.
