Crowned by academia, mothballed by the Fed: This week, forward guidance was both put on a pedestal and sent into cold storage.
This was the week’s most darkly comic macroeconomic event. The Nobel Prize in Economics went to Stanford’s Robert Hall and Columbia’s Michael Woodford—the latter’s theory laid the foundations for “forward guidance”: central banks anchor market expectations by clearly communicating the future path of interest rates. But since taking office in May, the Fed’s new chair, Warsh, has been doing the opposite: scrapping forward guidance, refusing to put his own mark on the dot plot, and trimming his first policy statement to about 130 words (Powell-era statements typically ran over 300 words).
The disagreement is now out in the open. Last week, Governor Waller openly “dissented” in Istanbul: he defended the SEP and dot plot, and proposed a compromise—hint at the terminal rate without committing to the pace or scale of moves, “something that has the flavor of forward guidance, but isn’t forward guidance.” In July, Warsh said it was a good thing that markets had “learned to watch the ball instead of the referee.” What they’re really arguing about is the same thing: should the central bank still give markets a map?
Warsh’s logic is easy enough to understand: crisis tools shouldn’t become standard practice in normal times, and a pre-drawn roadmap can tie policymakers’ hands. But the cost is that volatility gets concentrated on meeting day: after the June FOMC meeting, two-year Treasury yields jumped 13 basis points in a single day, while the Nasdaq fell 1.34%. The September data just released tonight show exactly what that means: PPI rose 1.3% month over month (versus 0.5% expected) and 6.3% year over year, its biggest increase since 2022; core PPI rose 0.7% month over month (versus 0.3% expected). Retail sales rose 0.8% month over month, but only 0.2% excluding gasoline. The hotter the data, the greater the suspense around the October 27–28 FOMC meeting; the odds of an October rate hike currently stand at about one-third.
The impact on crypto markets is clear: $BTC is trading sideways near $80,000, while $ETH has just seen a dip below $2,400 and roughly $286 million in liquidations in a single day—macro noise has become a market amplifier. Without the “referee” giving away the call in advance, every CPI and PPI release is a reveal. Next, watch to see whether Warsh responds to Waller’s challenge, and what else the incoming data wave adds before the FOMC meeting.
#WarshPushesToScaleBackForwardGuidanceAndDotPlot
#美联储 #RateHike
The above does not constitute investment advice. DYOR; trading involves risk.
This was the week’s most darkly comic macroeconomic event. The Nobel Prize in Economics went to Stanford’s Robert Hall and Columbia’s Michael Woodford—the latter’s theory laid the foundations for “forward guidance”: central banks anchor market expectations by clearly communicating the future path of interest rates. But since taking office in May, the Fed’s new chair, Warsh, has been doing the opposite: scrapping forward guidance, refusing to put his own mark on the dot plot, and trimming his first policy statement to about 130 words (Powell-era statements typically ran over 300 words).
The disagreement is now out in the open. Last week, Governor Waller openly “dissented” in Istanbul: he defended the SEP and dot plot, and proposed a compromise—hint at the terminal rate without committing to the pace or scale of moves, “something that has the flavor of forward guidance, but isn’t forward guidance.” In July, Warsh said it was a good thing that markets had “learned to watch the ball instead of the referee.” What they’re really arguing about is the same thing: should the central bank still give markets a map?
Warsh’s logic is easy enough to understand: crisis tools shouldn’t become standard practice in normal times, and a pre-drawn roadmap can tie policymakers’ hands. But the cost is that volatility gets concentrated on meeting day: after the June FOMC meeting, two-year Treasury yields jumped 13 basis points in a single day, while the Nasdaq fell 1.34%. The September data just released tonight show exactly what that means: PPI rose 1.3% month over month (versus 0.5% expected) and 6.3% year over year, its biggest increase since 2022; core PPI rose 0.7% month over month (versus 0.3% expected). Retail sales rose 0.8% month over month, but only 0.2% excluding gasoline. The hotter the data, the greater the suspense around the October 27–28 FOMC meeting; the odds of an October rate hike currently stand at about one-third.
The impact on crypto markets is clear: $BTC is trading sideways near $80,000, while $ETH has just seen a dip below $2,400 and roughly $286 million in liquidations in a single day—macro noise has become a market amplifier. Without the “referee” giving away the call in advance, every CPI and PPI release is a reveal. Next, watch to see whether Warsh responds to Waller’s challenge, and what else the incoming data wave adds before the FOMC meeting.
#WarshPushesToScaleBackForwardGuidanceAndDotPlot
#美联储 #RateHike
The above does not constitute investment advice. DYOR; trading involves risk.