Morey Stettner at MarketWatch asked advisers whether bond investors should be nervous with Kevin Warsh running the Federal Reserve. The August selloff pushed the 30-year Treasury yield above 5.3%, a 19-year high, and that got people looking at the usually quiet corner of their portfolio.
My view was about credibility, not personalities. A Fed that focuses on jobs and inflation free of political interference has credibility, and credibility is what keeps long-term interest rates anchored. That is the mechanism that matters for anyone holding bonds. If markets believe rate decisions are being made for reasons other than price stability, the pressure shows up at the long end of the curve, and a rate cut intended to help can end up raising the rates that actually price mortgages and long bonds.
The article's tone was cautious optimism. Most advisers, myself included, are giving the new chair the benefit of the doubt while watching the signals. For clients, my message was the same one I give in every rate environment: know why you own each bond, match maturities to when you need the money, and do not let a headline about the Fed chair rewrite a plan that was built for decades.
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