Kevin Warsh’s remarks after the Federal Reserve’s first policy decision under his chairmanship will probably spark more volatility at the shorter end of the Treasury curve while calming price swings at the long end, according to Kay Haigh at Goldman Sachs Asset Management.
Warsh’s “unambiguously hawkish” message surprised markets as he clearly prioritized fighting inflation in the short term, said Haigh, global head and chief investment officer of fixed income and liquidity solutions at Goldman Sachs Group Inc.’s asset management unit. Traders quickly piled into bets that policymakers will boost interest rates sooner than had been expected.
Investors now see the odds of a hike at the September meeting of the Federal Open Market Committee at more than 80%, and more than one move higher priced in for October, according to data compiled by Bloomberg. On Tuesday, traders didn’t see the likelihood of am increase until December.
“We will see much more volatility in the two-year sector going forward,” Haigh said Thursday on Bloomberg Television’s Surveillance. “That’s a combination of, firstly, you know, focusing on inflation, calming down the longer end of the curve and seeing that flattening action. And then a lot of commentary around kind of forward guidance, indicating there will be less of it, that the Fed will be more data dependent, and a lot of that will translate into two-year volatility.”
Two-year Treasury yields, which reflect market expectations for Fed policy, fluctuated Thursday after surging in the wake of the FOMC decision. The yield shot up 13 basis points on Wednesday, the biggest jump since April 2025 and matching the largest increase on a Fed meeting day since 2008. The 30-year yield touched a two-month low Thursday.
Before Wednesday’s meeting, Wall Street had largely assumed the Fed was done cutting rates as the Iran war boosted price pressures. But investors also wondered whether Warsh would bow to President Donald Trump, who appointed him after repeatedly lashing out at predecessor Jerome Powell for not slashing borrowing costs enough.
Haigh said Warsh’s clear commitment to bringing inflation down toward the Fed’s 2% target and the potential impact of his new communication style could be buttressed by the creation of five task forces to examine everything from the central bank’s economic forecasting data to how it implements policy.
Together these elements could help reduce price swings at the longer end of the curve, Haigh said.
These task forces “were very clearly designed to kind of re-examine the kind of operating model of the Fed,” Haigh said. “We need to see how that pans out but that could very well translate into, into less volatility at the long end, which in our view would make it much more attractive for investors.”
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