Kevin Warsh Told Jackson Hole That a "Quieter" Fed Serves Markets Better, Even as Investors Priced in Rising Odds of a Rate Hike. Here's Why Less Guidance Could Mean More Volatility.

At his keynote speech at Jackson Hole, Wyoming, on Aug. 28, Fed Chair Kevin Warsh struck a different note from his predecessor, Jerome Powell, promising "a quieter Fed" in which the market wouldn't get as much telegraphing of how the central bank planned to act on its interest rate decisions. Investors read his tough talk on inflation during that same speech as a (not-so-quiet) signal that a hike was coming. In keeping with what was overwhelmingly expected, the Fed dutifully hiked rates on Sept. 16.

For the S&P 500 (SNPINDEX: ^GSPC) and Nasdaq Composite (NASDAQINDEX: ^IXIC), the rate hike was met with only modest trading volatility, while the Dow Jones Industrial Average (DJINDICES: ^DJI) fell 1.21%.

But generally speaking, Warsh seems to want the markets to follow the Fed's decisions rather than front-run them, which means the future is likely to be more volatile, not less. Let's unpack why that's the case.

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