Stock Market Tumbles on First Fed Day Under New Chair Kevin Warsh
Quick Look
- The S&P 500 fell 1.2% and the Dow dropped 500 points on the first "Fed day" under new Federal Reserve Chairman Kevin Warsh, marking the worst performance for the index on such a day since 1994.
- Investors interpreted Warsh's focus on price stability as a signal against anticipated interest rate cuts.
AI-generated summary
Why It Matters
The stock market experienced significant declines on the first policy meeting day under new Federal Reserve Chairman Kevin Warsh. This performance was the worst for the S&P 500 on such an occasion since 1994.
If the stock market is a report card, Federal Reserve Chairman Kevin Warsh isn't coming out of his first policy meeting with high marks.
The S&P 500 tumbled 1.2% in Wednesday's session, with losses steepening during Warsh's inaugural press conference as chairman.
That marks the worst performance for the broad index on the first "Fed day" under a new chair since 1994, according to Bespoke Investment Group.
To be sure, there have been only three other new Fed leaders named in that timespan: Ben Bernanke, Jerome Powell and Janet Yellen. While those chairs' first Fed meeting days saw the S&P 500 close lower, none were of the magnitude seen on Wednesday.
Bespoke's figures go back to 1994 because prior to that year, the central bank did not formally announce its rate target. Greenspan ushered in that practice as chair.
Some investors saw Warsh's focus on delivering stable price growth as a sign that future interest rate cuts may not be as likely as previously anticipated. The Fed held interest rates steady as the market widely expected on Wednesday — despite the clear push for cuts from President Donald Trump, who nominated Warsh.
"He is absolutely telling you that he plans on delivering on price stability," DoubleLine Capital CEO Jeffrey Gundlach said on CNBC's "Closing Bell." "That means... we're not going to have such easy money policy as everybody thought maybe Chairman Warsh would do back in the first quarter of this year, when everyone was counting on rate cuts."
In fact, traders are increasingly expecting the opposite scenario after several Fed officials signaled a possible rate hike this year. Fed funds futures indicate the central bank could raise rates as soon as October now.
The Dow fell 500 points on Wednesday, giving up a gain on the day from before the Fed decision.
Warsh's Wednesday debut also offered a clear glimpse into how the "regime change" he's promised for the central bank will look. He significantly pared down the closely followed Fed meeting statement and announced task forces focused on overhauling the central bank's operations.
— CNBC's Yun Li contributed to this report.
What to Watch
AI outlook — possibilities, not facts
Fed funds futures indicate a possible rate hike as soon as October.
Possible · Within months
Open Questions
- Will the Fed actually raise rates this year?
- How will President Trump react to the Fed's policy direction?
