Bloomberg Surveillance · Friday, July 24, 2026
Jim Caron suggests that Fed Chair Kevin Warsh may be intentionally reintroducing volatility to the front end of the yield curve as a 'shock absorber' to inflation and inflation expectations. The goal, he posits, is to achieve smoother and more stabilized interest rates on the back end of the curve, which impacts corporate and consumer borrowing.
“I mean, look, so the way that I think that Warsh is approaching this is that he wants to have more contemporaneous, more real time policy reaction, meaning you know, fed interest sights hikes and cuts, and you know, depending on the cycle.”
“Think of the front end of the market as a shock absorber to inflation and inflation expectations. If you get the shock absorber right, you get a smooth ride for the back end of the curve. And the back end of the curve could get more normal, stabilized interest rates. And that's where most people borrow, that's where corporates borrow, that's where people borrow for mortgages, for cars, autos and everything else.”
“So I think the uncharted territory that we're moving into here is that is that Warsh will likely be more volatile in terms of his short term views on inflation and interest rate policy. But that's there to smooth out the long in and I think this is a very very different FED right now that's going to introduce more supply side indicators, not just rely solely on demand side indicators, to help, you know, make their policy decisions going forward.”