Morgan Stanley: The Federal Reserve under Waller's leadership may intensify volatility in the US Treasury market

PANews, February 3rd – Morgan Stanley stated that if Kevin Warsh were to become the chairman of the Federal Reserve, his tendency to reduce public communication could exacerbate volatility in the US Treasury market. Warsh previously served as a Federal Reserve governor from 2006 to 2011 and advocated that investors should make their own judgments about the economy and policy, rather than relying on the Federal Reserve's views.

Morgan Stanley's analysis pointed out that Warsh may prefer a smaller Federal Reserve balance sheet, which could lead to an increase in long-term Treasury yields and result in a steeper yield curve compared to short-term yields. In addition, he might reduce communication with the market, such as cutting back on media interactions before Federal Open Market Committee meetings, or even possibly eliminating tools like the "dot plot" forecasts. This would increase the likelihood of policy surprises and raise market uncertainty.

However, some investors believe that Warsh may place greater emphasis on data-driven decision-making and could help foster consensus within the Federal Reserve. Jeffrey Palma, head of multi-asset solutions at Cohen & Steers, said that Warsh may be one of the more responsive candidates to data changes among recent nominees.