BlockBeats news, on August 3, Federal Reserve Chair Kevin Warsh decided last week to hold interest rates steady, but bond markets experienced significant volatility. Some seasoned bond fund managers believe that the Fed’s decision to stand pat has produced a stronger financial tightening effect than an actual rate hike, through market reactions.
Eric Hicman, founder of Lantern Capital, said that as of last Friday's close, following the Federal Reserve's interest rate decision and the Powell press conference, the combined market value of U.S. Treasuries, notes, and bills across various maturities had declined by approximately $115 billion.
Hickman calculated that if the Federal Reserve had chosen to raise rates by 25 basis points that week, and assuming bond yields for maturities of five years or less rose by the same amount, the bond market would have incurred losses of approximately $65 billion in an extreme scenario—still lower than the losses caused by the actual volatility observed this time.
He believes that Walsh achieved a stronger tightening effect by allowing the market to reprice, rather than directly raising policy rates, while avoiding a commitment to maintain higher rates over the long term.
Data shows that last Friday, the U.S. 30-year Treasury yield rose to 5.229%, reaching its highest level in nearly 19 years; the 10-year U.S. Treasury yield climbed to 4.688%, the highest since January 2025.
Hickman said it is still unclear whether Wash intentionally leveraged market reactions to tighten policy, but Wash has long advocated reducing forward guidance and allowing markets to absorb economic information on their own—a philosophy that was clearly evident in this policy action.
However, there is disagreement within the Federal Reserve. St. Louis Fed President Musalem stated that monetary policy responsibility lies with the FOMC, not the financial markets, suggesting concern over the approach of "relying on market adjustments to achieve policy outcomes."