Goldman Sachs believes that Federal Reserve Chairman Warsh is leading the Fed to reduce transparency, a change evident in the two FOMC meetings before and after his appointment. Before the July meeting, the interest rate market had given approximately a 30% probability of a rate hike, but the FOMC ultimately kept rates unchanged—the biggest "surprise" of a non-rate-cut meeting since the late 1990s.
Following these two meetings, long-term yields in the US rose relatively, the yield curve steepened, and interest rate volatility increased, but the market's pricing of inflation levels did not undergo a significant revaluation. Goldman Sachs therefore concludes that the market is currently primarily pricing in increased uncertainty regarding the policy path, and has not yet clearly shifted to trading in a "declining Fed credibility" scenario.
