For over three decades, the US Federal Reserve has moved towards greater transparency, introducing new ways of communicating its outlook to markets. Weeks into his tenure, Fed Chair Kevin Warsh is reversing that trend. He scrapped forward guidance and opted out of the dot plot, arguing that markets have become overly focused on interpreting Fed signals. ​ In this episode of The Flip Side, Brad Rogoff, Global Head of Research, and Ajay Rajadhyaksha, Global Chairman of Research, debate whether markets have become too reliant on central bank communication and what may happen without it. They explore the evolution of Fed transparency, the risk of market volatility if the Fed goes quiet, and whether investors may ultimately benefit from being forced to focus more closely on economic fundamentals.​ The discussion also considers the current macro backdrop and whether a period of inflation uncertainty, oil shocks and market repricing is the right moment for the Fed to take a different approach.​ Listeners can learn more about this topic:​ Flip Side ep. 80: Is US equities exceptionalism finally cracking?​ Barclays Brief ep.34: The Fed’s next move​ Clients of Barclays Investment Bank can read our latest reports by logging in to Barclays Live:​ United States: Interest Rates: Returning to the old normal​ Macrocast - US in Focus: Warshspeak​ Important Content Disclosures​

If the Fed goes quiet, do markets make more noise?

The Flip Side

Welcome back to The Flip Side. Today, I'm joined by Ajay Rajadaks, our Chairman of Research, to discuss some pretty remarkable changes in the Fed's process of communicating with financial markets. Ajay, you're probably our most frequent guest here, but it's been a few months since we had you on, so welcome back. It's great to be back here, Brad. Let's talk about Kevin Warsh. He's been the Fed Chair for a few short weeks, and he's already just basically ripped apart the playbook.

At his first FOMC meeting, June, he scrapped forward guidance, slashed the post-meeting statement down to 132 words, something you and I would have real trouble with, and refused to submit his own dot plot projections for future interest rates in the summary of economic projections. His argument is that forward guidance has turned markets into a mirror, basically. You know, the Fed watches what markets do, markets watch what the Fed does, and nobody's actually watching the economy.

So what do you make of that? I think the diagnosis is probably very right, Brad. So look, he has put his finger on something that a lot of us in markets have felt for years. When every investor on the planet is parsing Jerome Powell's adjectives, did he say some further progress or modest further progress or, you know, something along those lines? You have lost the plot. Markets are not pricing risk anymore. They are pricing just Fed speak.

I actually thought I was going to be the one here who's defending worse. Do you actually agree? Well, look, I agree with the diagnosis. I'm less sure about the prescription. Because like you said, ripping the bandage off in one go, in the middle of an oil shock with CPI at 4.2%, with the semiconductor...

If the Fed goes quiet, do markets make more noise?

Read the full transcript

The candid version is on a podcast,
not the earnings call.

If the Fed goes quiet, do markets make more noise?

Read the full transcript

The candid version is on a podcast, not the earnings call.

The candid version is on a podcast,
not the earnings call.