Apollo's Slok Says Warsh Silence Fuels Treasury Selloff

• 30-year Treasury yields are rising (e.g., to 5.19%) as the market reacts to the Fed's inaction on rates, tightening financial conditions.
• The lack of forward guidance from the Fed is increasing market volatility and uncertainty about future policy.
• Slok highlights Warsh's emphasis on the Lucas critique, suggesting that historical models are less reliable when policy regimes change, leading to a 'model-free' Fed approach.
• The market's strong reaction to the Fed's 9-3 vote to hold rates constant challenges the committee's credibility and implies a higher probability of rate hikes at future meetings.

Torsten Slok, Chief Economist at Apollo, discusses how the Federal Reserve's abandonment of forward guidance, as advocated by Kevin Warsh, is leading to increased bond market volatility and higher long-term Treasury yields. He argues that the market is effectively tightening financial conditions in the Fed's stead, challenging the central bank's credibility and potentially forcing future rate hikes if inflation persists.