{"id":1864,"date":"2026-06-21T05:40:08","date_gmt":"2026-06-21T05:40:08","guid":{"rendered":"https:\/\/crosscountrymovingteams.com\/?p=1864"},"modified":"2026-06-21T05:40:08","modified_gmt":"2026-06-21T05:40:08","slug":"new-fed-chair-kevin-warshs-decision-to-drop-forward-guidance-may-actually-empower-the-central-banks-other-policymakers","status":"publish","type":"post","link":"https:\/\/crosscountrymovingteams.com\/?p=1864","title":{"rendered":"New Fed Chair Kevin Warsh\u2019s decision to drop forward guidance may actually empower the central bank\u2019s other policymakers"},"content":{"rendered":"
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But in\u00a0his first press conference\u00a0Wednesday, new chair Kevin Warsh began to reverse some of those steps. Warsh, like many economists, thinks the financial markets have become too dependent on Fed guidance, and that such direction is more effective in financial crises or economic downturns.<\/p>\n

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Warsh quickly made changes: The Fed\u2019s statement on its interest-rate decision was slashed to 132 words, from 341 in April. And Warsh pointedly noted that the statement excluded any hints, or \u201cforward guidance,\u201d about what the Fed\u2019s next moves might be.<\/p>\n

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In short, Warsh rapidly delivered on a promise to slash the Fed\u2019s communications, particularly the guidance it gives to financial markets about its next interest-rate moves. Yet such an approach carries the risk of more violent swings in stock and bond prices, analysts say, and ultimately could lead to higher interest rates for consumers and businesses.<\/p>\n

\u201cForward guidance in general has served to suppress volatility and anchor market expectations,\u201d said George Pearkes, global macro strategist at Bespoke Investment Group. \u201cAnd that has led to lower borrowing rates, relative to alternatives.\u201d<\/p>\n

Still, the impact on consumers is likely to be modest, Pearkes added, with mortgage rates perhaps a quarter-point higher than they would be otherwise.<\/p>\n

Financial markets\u00a0see-sawed, then fell\u00a0Wednesday after the statement and news conference. The yield on the 10-year Treasury, which strongly influences mortgage rates, jumped Wednesday to 4.49% from 4.43%, though it fell back in Thursday trading. The yield on the 2-year Treasury, which closely tracks expectations for Fed action, was 4.16% Thursday, up sharply from 4.05% before the Fed\u2019s meeting. The broad S&P 500 stock index dropped 1.2% Wednesday.<\/p>\n

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Warsh may be headed back to 1990s<\/h4>\n

Such swings could be a sign of things to come. Previous chairs have signaled the Fed\u2019s next moves clearly enough that financial markets have largely anticipated the central bank\u2019s actions. But Warsh has frequently cited as a model former chair Alan Greenspan, whose circumspect comments often kept investors guessing.<\/p>\n

Greenspan, who served as chair from 1987 to 2005, did usher in the statement the Fed now issues after each meeting announcing its decision. The first statement was issued Feb. 4, 1994, and said the Fed would increase its key rate for the first time in five years. The move caught investors off-guard and the Dow Jones Industrial Average plunged 2.4% that day.<\/p>\n

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The paring back of Fed communications is part of a larger package of potential reforms to the central bank\u2019s operations that Warsh signaled Wednesday. He announced that the Fed will set up five task forces to examine the Fed\u2019s communications, its balance sheet, how it analyzes and gathers economic data, the impact of AI on productivity and jobs, and the frameworks it uses to analyze inflation.<\/p>\n

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Warsh said the communications task force would consider changes to the quarterly economic projections the Fed issues as well as look at other recent innovations, including press conferences. Former chair Ben Bernanke was the first to hold them, though he did so only after every other Fed meeting. Warsh\u2019s predecessor, Jerome Powell, shifted to holding them after every meeting.<\/p>\n

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Such steps are a sharp contrast with the 1990s, when Greenspan never explained a Fed decision, on the record, to reporters. Warsh could ultimately dial back some of the Fed\u2019s increased transparency.<\/p>\n

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\u201cThis is a big change in how the Fed has conducted itself since the (2008-2009) global financial crisis,\u201d Matthew Luzzetti, chief U.S. economist at Deutsche Bank, said. \u201cSince then there has been a one-way train to greater communication, more transparency, and more forward guidance. Warsh has now put that train in reverse.\u201d<\/p>\n

Fed chairs have seen benefits to forward guidance<\/h4>\n

Previous Fed chairs, starting with Bernanke, have seen a clear benefit to more communication: It helps guide the markets in the direction the Fed wants. Fed officials control a short-term interest rate, but the rates that affect the economy \u2014 such as the yield on the 10-year Treasury \u2014 are heavily influenced by investors\u2019 expectations for inflation and economic growth. By telegraphing their next moves, policymakers can cause those longer-term rates to change even before the Fed adjusts its own benchmark rate.<\/p>\n

Yet Warsh\u2019s view is that financial markets have become too dependent on Fed guidance. Instead, he wants investors to gauge where the Fed may move next by examining economic data and making their own judgments, which the Fed can then consider as part of their assessments of where the economy is headed.<\/p>\n

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\u201cFinancial market prices are probably the most important source of information to guide central bankers,\u201d Warsh said at Wednesday\u2019s news conference.<\/p>\n

Guidance can help with unexpected events<\/h4>\n

David Andolfatto, an economics professor at the University of Miami and former economist at the St. Louis Fed, said he agreed with Warsh that forward guidance has flaws. It can be easily upended by unexpected events, he said, such as Russia\u2019s invasion of Ukraine or the Iran war.<\/p>\n

But the chair should set out guidelines for how the Fed will react to unexpected events, Andolfatto said, or to challenges such as the persistent inflation it is grappling with now, yet Warsh so far hasn\u2019t done so.<\/p>\n

\u201cI\u2019m with him on dispensing with forward guidance, but you have to replace it with a contingency plan,\u201d Andolfatto said. \u201cIt\u2019s not enough to say, trust me, we\u2019ll keep inflation at target.\u201d<\/p>\n

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Ironically, Warsh\u2019s decision to drop forward guidance may empower the other 18 members of the Fed\u2019s rate-setting committee, Pearkes said. Those officials \u2014 six members of the Fed\u2019s governing board, plus the presidents of the 12 regional Fed banks \u2014 frequently give public speeches, and their remarks will get even more attention as financial markets seek clues about what the Fed may do next.<\/p>\n

A big challenge to Warsh\u2019s approach will come if there is a sharp financial downturn or economic crisis, as occurred during the COVID pandemic. In those circumstances, economists said, forward guidance can play an important role calming markets.<\/p>\n

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\u201cWhether it will stand the test of time and he will behave this way for five years is a very different question, but one that we\u2019re going to have to wait for events to unfold to get an answer to,\u201d Pearkes said.<\/p>\n

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Those officials frequently give public speeches, and their remarks will get even more attention as financial markets seek clues about what the Fed may do next.<\/p>\n","protected":false},"author":1,"featured_media":1863,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[123],"tags":[],"class_list":["post-1864","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-federal-reserve"],"yoast_head":"\nNew Fed Chair Kevin Warsh\u2019s decision to drop forward guidance may actually empower the central bank\u2019s other policymakers - Cross Country Moving Team<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/crosscountrymovingteams.com\/?p=1864\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"New Fed Chair Kevin Warsh\u2019s decision to drop forward guidance may actually empower the central bank\u2019s other policymakers - 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