FOMC on Autopilot as Fed Chair Warsh Avoids Policy Signals Amid Bond Market Decline

By Kelsey Williams

The Federal Open Market Committee (FOMC) remains on autopilot for the time being. The decision to maintain the target federal funds rate at 3.5–3.75 percent stems primarily from a perceived need to appear non-confrontational.

Fed Chair Kevin Warsh made every effort to avoid taking a definitive stance or offering any signals about the direction of future Fed policy, declining to answer questions directly. This approach leaves the door open for rate adjustments in either direction.

The Fed's Dual Dilemma

Consider the implications. If the Fed were to raise rates and trigger a collapse in the bond market—one that spreads to equities and other financial assets while pushing borrowing costs higher—who would bear the blame?

Conversely, a surprise rate cut, whether now or later, could send the bond market into a tailspin for an entirely different reason. Severe negative repercussions for the U.S. dollar would translate directly into higher long-term interest rates, driven by the worsening effects of inflation. The federal funds rate directly influences short-term borrowing costs across the economy, but long-term Treasury yields—which govern mortgages, corporate bonds, and other consumer credit—are determined by market participants pricing in growth, inflation, and fiscal risk expectations.

Meanwhile, the bond market has done its part by sinking to a new 20-year low. Rates on long-term U.S. Treasury bonds now stand at their highest point in two decades. Bond prices and yields move inversely, so falling prices reflect selling pressure from investors demanding higher compensation to hold government debt. If the deterioration continues, Kevin Warsh and the Fed retain the ability to react more decisively than their latest action implies.

The central question is whether falling bond prices and rising interest rates stem from massive credit problems or from ongoing concerns about the U.S. dollar and inflation. This is the never-ending dilemma confronting the Fed, one from which there is no escape. It leads to the proverbial practice of "kicking the can down the road"—a lack of decisive action except when a financial crisis demands it. Historically, the Fed has navigated comparable crossroads—most recently during the inflation surge of 2021–2023—by delaying action until market stress forced its hand.

Warsh's Comments on Inflation

"We recognize that inflation has been running well ahead of the Fed's long-stated inflation goal of 2 percent that's been going on for more than five years. Persistently high prices are a burden for the American people."

— Chairman Warsh's Press Conference, June 17, 2026

The various task forces announced by Chair Warsh are, at best, a smoke screen. This is particularly true of the one focused on "inflation frameworks." The Fed's 2 percent inflation target was formally adopted in January 2012 under Chairman Bernanke, and has been the subject of periodic review ever since, including the 2020 shift to an average inflation targeting framework under Chair Powell. According to the author, there are no "drivers of inflation" other than the Federal Reserve itself. (See: Inflation Is Created By The Federal Reserve)

Forward Guidance: A History of Post-Fact Acknowledgments

You will not hear plain-spoken forward guidance from Kevin Warsh, or from any other Fed chair or governor. What you might hear is an apology or an admission of guilt, offered only after the fact:

"… I discovered a flaw in the model that I perceived is the critical functioning structure that defines how the world works."

— Alan Greenspan, 2008

"Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again."

— Ben Bernanke to Milton Friedman, 2002

Alternatively, you might hear words of assurance:

"Would I say there will never, ever be another financial crisis? You know probably that would be going too far but I do think we're much safer and I hope that it will not be in our lifetimes, and I don't believe it will be."

— Janet Yellen, 2017

The pattern of retrospective acknowledgment spans multiple chairs and decades, from Greenspan's congressional testimony on the housing crisis to Bernanke's mea culpa on the Great Depression to Yellen's pre-crisis confidence—a track record that contextualizes the difficulty of reading sitting Fed chairs' public statements as reliable indicators of future policy.

Conclusion

The ongoing series of FOMC policy meetings can be expected to continue with considerable drama. The author characterizes the displays as spectacular and potentially devastating—and notes that they cannot be cancelled due to inclement weather or extreme fire hazard.

Changing the channel, the author observes, will not help: the message will be the same on all stations.

(Also see: Stubborn Gold & Slumping Silver)

---

About the author: Kelsey Williams is an analyst, author, and owner of Kelsey's Gold Facts. He has more than forty years of experience in the financial services industry, including fourteen years as a full-service financial planner. He is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN'T, AND WHO'S RESPONSIBLE FOR IT and ALL HAIL THE FED!