Morgan Stanley: Fed Led by Powell Could Intensify US Treasury Market Volatility

February 3rd, Morgan Stanley said the Federal Reserve under Kevin Warsh could exacerbate volatility in the U.S. Treasury market by reducing policy transparency. Warsh—nominated by Trump to succeed Powell as Fed chair in May—served as a Fed governor from 2006 to 2011. Morgan Stanley’s review of past Federal Open Market Committee (FOMC) meeting minutes found Warsh wanted investors to form their own views on economic growth, inflation, and monetary policy. At the bank, analysts Hornbach and Tauber note the former governor favors a smaller balance sheet: this could push long-term Treasury yields higher relative to short-term yields, steepening the yield curve. A key concern, however, is that the Fed under Warsh may alter its communication strategy, raising investor uncertainty. Changes could include less media interaction from Fed officials (especially ahead of FOMC meetings) and potentially scrapping the “dot plot” forecasts or economic projections summary (per FXStreet).