Treasury bonds lost $115 billion in value after the Fed decision and press conference, according to one calculation
By design or not, Fed Chair Kevin Warsh tightened financial conditions last week.
It sounds paradoxical, but Federal Reserve Chair Kevin Warsh may have tightened the economy more by not lifting interest rates than he would have by actually increasing them.
That claim was made by Eric Hickman, a veteran bond fund manager and founder of Lantern Capital, a Denver-based advisory and economic research firm.
Hickman's argument, laid out in a post on X, was based on the calculation he made that $115 billion was lost across all maturities of Treasurys, coupons and bills, from before the Federal Open Market Committee decision on Wednesday through Friday.
The math arguing that the Fed tightened the economy more by keeping rates unchanged than it would have by increasing the federal-funds rate.
The yield on the 30-year Treasury BX:TMUBMUSD30Y on Friday reached the highest level in 19 years. The yield on the 10-year Treasury BX:TMUBMUSD10Y climbed to the highest level since Jan. 2025.
Hickman compared the move in bonds to a hypothetical situation where the Fed did lift interest rates, and that every issue from 0 to 5 years in maturity rose 25 basis points - which he says is a generous assumption. In that scenario - assuming no change in the value of the long end - bonds would fall in value by $65 billion.
"For the Fed's price stability quest, the way Warsh did it and the bond market's reaction pressed harder on the proverbial brake than raising rates would've, and all without the Fed committing to a permanent raise," wrote Hickman.
Now, was Warsh deliberating targeting the long end of the curve with the statement and ensuing press conference?
Hickman, reached by email by MarketWatch, concedes that he is not sure.
"But it just so happened to prove his point about playing the ball and tightening financial conditions in one fell swoop," Hickman said. Warsh has spoken at length about not trying to guide traders so as to derive a better signal about the economy from financial markets.
The approach is a controversial one. St. Louis Fed President Alberto Musalem told the Financial Times in an interview published Friday that it's the job of the Fed, and not the markets, to conduct monetary policy.
"Congress gave the FOMC the responsibility to achieve price stability and maximum employment. It did not give that responsibility to markets," said Musalem.
-Steve Goldstein
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