Warsh’s Silent Treatment Has S&P Traders Bracing for Wild Swings

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(Bloomberg) — A relentless run of uncertainty, from war to tariff fights to inflation that refuses to die, has challenged investors this year. Now they have to balance another risk: A Federal Reserve that won’t tell them what it’s thinking.

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The issue came to a head this week after Fed Chairman Kevin Warsh finished his press conference without giving any guidance on whether or when the central bank will raise interest rates to combat stubbornly rising prices. It was a particularly curious choice since three of the 12 members on the Federal Reserve Open Market Committee voted for immediate rate hikes. The FOMC is typically unanimous in its decisions or very close to it.

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Traders were clearly spooked, triggering a wild final hour of trading on Wednesday. The S&P 500 Index plunged to its worst selloff on a Fed decision day since December 2024. The yield on 10-year Treasury bonds leaped to the highest level since January 2025. And the Cboe Volatility Index, or VIX, vaulted above 20, a level that indicates increased fear in the market.

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“I was really shocked at how poorly I thought that press conference went,” said Marta Norton, chief investment strategist at Empower.

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Wall Street pros were merciless in their reviews of Warsh’s performance, saying that Fed guidance helped reduce market volatility by guiding traders to where the Fed was thinking. Now, investors want a “higher uncertainty premium” to cover the risk that the central bank waits too long to act on inflation, according to Karl Schamotta, chief market strategist at Corpay. “Some might call this a ‘moron risk premium,’ but I could not possibly comment,” he wrote in a note to clients.

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“The market is being forced to factor in a confluence of factors without an anchoring thesis, which has been the Fed’s forward guidance,” said Joe Gilbert, portfolio manager at Integrity Asset Management. 

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Warsh is taking the opposite approach, looking for markets to help guide the central bank. Or in his words, investors are “learning to play the ball, not the referee.” 

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The problem with Warsh’s sports analogy, investors say, is the macro forces influencing stock prices are increasingly erratic, making it extremely difficult to simply “play the ball.” For example, President Donald Trump is trying to rebuild his tariff wall just as the war in Iran causes wild fluctuations in oil prices and inflation expectations. In light of the Fed’s role in setting short-term interest rates in response to these and other factors, the decision to offer no guidance is seen as exacerbating risks in an already volatile market.

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“You’re also a player on the court, you’re not just a referee,” Norton said.

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That volatility was on display at the end of this week. 

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After tumbling Wednesday afternoon, the S&P 500 rallied Thursday and early Friday, then reversed direction to fall into the red before reversing again and ending up. The moves were largely driven by chip stocks, which have been spurring the market all year. The Philadelphia Stock Exchange Semiconductor Index, or SOX, sank 5.3% on Wednesday, soared 8.2% on Thursday for its best day since April 2025, then jumped another 5% at the start of trading Friday before giving up its gain and turning negative in less than an hour, and eventually closing barely in the green.