Bank of America questions Fed Chair Warsh's credibility over policy stance

Bank of America has expressed concern that Federal Reserve Chair Kevin Warsh appears overly relaxed about inflation after his recent decision to keep the policy rate unchanged. The bank said the press conference following the 9-3 vote to hold rates added uncertainty, leading markets to price in higher inflation breakevens, a steeper yield curve, lower equity prices and a weaker dollar, patterns typically associated with credibility shocks at central banks.

The bank’s internal memo noted that the market reaction reflected a "bear steepening, high inflation breakevens, and higher risk premia," indicating investors are uneasy about the Fed’s forward guidance.

Commentators cited by Bloomberg, including Employ America executive director Skanda Amarnath, argued that Warsh had previously hinted at a July rate hike before backing away, suggesting the committee may need to make additional hikes in 2026. Tim Duy, chief U.S. economist at SGH Macro Advisors, also questioned Warsh’s credibility, while economics professor Justin Wolfers said unclear communication from the Fed can increase market uncertainty.

Separately, the Institute for Supply Management’s manufacturing survey highlighted that some respondents view the current market environment as more challenging than during the COVID-19 pandemic, citing persistent pricing volatility and extended lead times in sectors such as primary metals and electrical equipment.