Fed Chair Kevin Warsh talks a big game, but this market indicator will tell you if Wall Street trusts him after he caused a ‘credibility shock’

Federal Reserve Chairman Kevin Warsh has been talking a big game for months about fighting inflation, but failure to signal an intention to follow through soon has Wall Street questioning his commitment to price stability.

Markets didn’t react immediately after the Fed announced no change to rates on Wednesday as investors had largely bet policy would remain steady. Instead, Warsh’s comments during his post-meeting press conference sparked a selloff in Treasuries that sent yields sharply higher.

He has vowed “regime change” at the Fed by rolling back so-called forward guidance on where rates are headed and offered no such clues on Wednesday, even talking around no-brainer questions on how to bring down inflation.

Other hints on how he might change the way the Fed operates rattled nerves further. Warsh indicated an openness to other inflation gauges besides the Fed’s preferred metric and suggested there could be tools other than rate hikes to fight inflation. He also implied that higher yields have already done some of the Fed’s work for it.

But this backfired, resulting in what Aditya Bhave and the U.S. economy team at Bank of America called a “central bank inflation credibility shock.”