Economist Mark Zandi warns Fed Chair’s ‘opaque’ policy could trigger ‘serious market sell-off’

Zandi said the Federal Reserve’s decision to keep interest rates unchanged at last week’s Federal Open Market Committee (FOMC) meeting was not his primary concern. Instead, he warned that the central bank’s increasingly limited communication about the future path of monetary policy could unsettle investors and amplify market volatility, according to Business Insider.

“If the Fed continues down this increasingly opaque path, a future meeting could trigger a serious market sell-off — putting the broader economy at risk,” Zandi wrote in a post on X on Sunday.

Focus shifts from rates to communication

The Fed left its benchmark interest rate unchanged at its latest policy meeting. However, attention was largely on the rate decision, Zandi said the bigger issue was the central bank’s unwillingness to signal how it could respond to changing economic conditions in the months ahead.

“I’m not concerned about the Fed’s decision to keep rates unchanged,” Zandi said. “My concern is that policymakers are unwilling to provide even a modicum of forward guidance — or a broad sense of their reaction function,”

According to Business Insider, Zandi believes the absence of even broad policy signals leaves investors with little basis for assessing future Fed decisions.

Warsh moves away from forward guidance

Warsh has made it clear since taking over as Fed chair that he wants to reduce the central bank’s reliance on forward guidance. At his first post-FOMC press conference in June, he said the policy statement had been simplified and that the Fed had dropped forward guidance because it was “not well suited to the current policy conjuncture.” He has since reiterated that the Fed will make decisions on a meeting-by-meeting basis rather than indicating future moves in advance.

This shows a departure from recent practice, when Fed officials routinely offered markets clues about the likely direction of interest rates through policy statements, economic projections and press conferences.

More uncertainty could lead to volatility

Zandi warned that the new approach could make nearly every Fed meeting a “live” event, with investors unable to anticipate policy decisions before they are announced.

“Many (most) meetings will thus be live, and investors will be unsure of what the committee will decide,” Zandi added. “They will be left guessing and repeatedly wrong-footed. That means more volatility in bond and stock markets, which is likely already reflected in a larger term premium, rising long-term interest rates, and a wobbly equity market.”

Zandi has previously cautioned about recession risks linked to President Donald Trump’s trade policies and restrictive immigration measures. He now says the Fed’s communication strategy has become another source of concern for the outlook, arguing that greater uncertainty could undermine both financial markets and economic stability.