Bank of America: Fed Chair Warsh Losing Credibility
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- Bank of America warned Fed Chair Kevin Warsh is losing credibility after his dovish press conference followed a 9-3 Fed decision to hold the policy rate unchanged.
- Kevin Warsh's messaging triggered a bear steepening, high inflation breakevens, higher risk premia, lower equities and a weaker dollar—the pattern BoA ties to credibility shocks seen at emerging-market central banks.
- Skanda Amarnath, executive director of Employ America, said Warsh had been hyping July rate hikes before backing out and that three more hikes in 2026 are now the right base case.
- Justin Wolfers argued Warsh's instinct that "saying less would be better" backfired: "Less clarity created more uncertainty," because markets price in what the Fed says it believes, not just its actions.
- Tim Duy, chief U.S. economist at SGH Macro Advisors, also publicly questioned Warsh's credibility after the press conference.
- Two ISM manufacturing respondents told the Institute for Supply Management that current pricing volatility and lead-time extensions are worse than the COVID-19 era, with no leveling-off in sight.
Why it matters: A credibility erosion in Warsh's first months could force the FOMC to over-deliver on tightening to restore trust—Amarnath's call for three additional 2026 hikes reflects that compensation logic. Bond and currency markets are already absorbing the cost: a steeper curve, weaker dollar, and higher inflation risk premia mean tighter financial conditions for borrowers and importers before the Fed has moved a single rate.
