'A serious mistake': Moody's Analytics economist says the Fed is putting the US economy at risk by not forecasting its next move

At a news conference following the conclusion of the two-day meeting, Warsh declined to say what conditions would prompt the Fed to raise interest rates. Financial markets swiftly reacted, sending the yield on the 30-year Treasury bond to 5.22% — its highest level since 2007.

That has prompted several analysts to warn that the Fed could face backlash from investors that may threaten the broader economy.

“There is a new potential threat to the economy – a serious mistake by the Federal Reserve,” Mark Zandi, chief economist at Moody’s Analytics, wrote in an X post. “I’m not concerned about the Fed’s decision to keep rates unchanged. My concern is that policymakers are unwilling to provide even a modicum of forward guidance — or a broad sense of their reaction function.”

‘More volatility in bond and stock markets’

Zandi said the Fed’s reluctance to guide Warsh will leave investors guessing about its strategy to combat inflation and “repeatedly wrong-footed.”

“That means more volatility in bond and stock markets, which is likely already reflected in a larger term premium, rising long-term interest rates, and a wobbly equity market,” Zandi said. “If the Fed continues down this increasingly opaque path, a future meeting could trigger a serious market sell-off — putting the broader economy at risk.”

Stocks fell while bond yields climbed after the Fed concluded its meeting last week.

Economists at Bank of America also warned that traders could begin treating the Fed more like the central bank of a developing economy struggling with credibility issues.

“A steeper curve, lower equities, and a weaker dollar is the typical price action associated with credibility shocks faced by [emerging market] central banks,” Bank of America said in a note. “The Fed is facing a growing credibility problem.”