Private credit lenders must underwrite wider interest rate outcomes and treat volatility as a risk, Anant Kumar from Benefit Street Partners (BSP) has warned.

The warning comes ahead of Federal Reserve (Fed) chairman Kevin Warsh’s keynote speech at the Jackson Hole symposium on Friday (28 August), which investors hope will provide some clarity on how the US central bank will respond to stubborn inflation.

Read more: BSP: Private credit must prepare for higher rates and greater dispersion

Since becoming chairman in May, Warsh has resisted laying out a detailed policy agenda and sought to scale back forward guidance. However, inflation remains above the US central bank’s target, while Treasury Secretary Scott Bessent recently announced a plan to buy back long-term US debt, in a perceived effort to influence long-term yields.

Kumar, global investment strategist at BSP, stated that while scaling back forward guidance is an “interesting experiment” and stops “lazy thinking”, it also allows uncertainty to compound.

“Sell-offs become self-fulfilling spirals without reassuring Fed commentary to lean against,” he said.

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Kumar stated that for private credit lenders, this new dynamic calls “for underwriting a wider distribution of interest rate outcomes than the forward curve implies, and treating rate volatility, not just the level, as a risk”.

“So a market starved of signals will hang on every cue when Warsh takes the stage on Friday,” Kumar added. “It needs fiscal realism.

“You do not normally run 6 per cent deficits with an economy this warm and the long end is demanding fiscal correction; but it got jawboning and a $4bn buyback.”

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