Kevin Warsh wants the Fed to be quieter

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Kevin Warsh pushed for “regime change” at the central bank last year. Now Wall Street is about to find out whether the new Fed chair will carry out drastic reforms, tip-toe changes or something in between.

An ex-Fed governor, Warsh helmed his first two-day meeting of the rate-setting Federal Open Market Committee in which policymakers voted to sit still on the benchmark 3.5% to 3.75% interest rate. That part was expetercted. More unexpected was Warsh’s announcement of five task forces that will re-examine how the Fed operates across areas like communications, inflation, and how it measures productivity.

Nine of 19 Fed officials forecasted a rate hike by year’s end, a striking change from March when no policymaker called for increasing interest rates.

This isn’t the economy that Warsh expected to inherit at the start of the year. The case for lower interest rates has virtually disintegrated in the wake of the Iran War and the ensuing inflation it unleashed across energy, commodities, groceries and more. 

Instead, momentum within the central bank has shifted towards hiking rates, not easing them. The labor market bolstered that part of the equation with recent signs of a rebound after last year’s lackluster pace of growth. Employers added 172,000 jobs in May, according to the latest jobs report from the Bureau of Labor Statistics.

President Donald Trump has demanded sharply lower interest rates for a year, and he didn’t camouflage his desire to appoint a new Fed chief that agreed with him. For now, the president is giving Warsh breathing room. 

“We have a very good guy over there now, so I’m guided by what he wants to do,” he said Wednesday afternoon.

Piping down at the Fed

Among Warsh’s top priorities is pushing the Fed to pipe down on its economic forecasting, otherwise known as “forward guidance.” During Alan Greenspan’s time as Fed chair, he pioneered the introduction of forward guidance to relay how the central bank expected economic conditions to evolve. 

Transparency was calculated to be an indispensable part of policy, helping to stage-manage Wall Street’s expectations of which path the Fed planned to take: hiking, cutting, or sitting still on rates. Warsh, though, said on Wednesday that forecasting was “not well suited to the current policy conjecture.” 

In fact, the latest FOMC statement was just 132 words long and did not include the interest rate votes of FOMC members.

“It’s a bit shorter, a bit simpler and it dispenses with some older language,” Warsh said at the press conference. “That statement just gives you the facts, as best we can judge it.”

Warsh quickly zeroed in on another aspect of Fed governance. The so-called “dot plot” serves as a quarterly update telegraphing how Fed officials wish to steer interest rates in the near future. For investors, it serves as a valuable clue to price in which direction the central bank will take monetary policy. Warsh held off from participating.

Some Fed observers argue the central bank should tilt towards keeping the FOMC’s doors cracked open into its decision-making process.

“Markets do not need the Fed to telegraph its next move — the world is changing too fast for explicit forward guidance to make sense,” Claudia Sahm, a former Fed official who’s now chief economist at New Century Advisors, wrote in a Substack post. “Instead, they need to see how the committee is weighing a genuinely hard call.”

Earlier this month, Warsh carried out a pair of personnel moves that offered potential hints into his other priorities. He picked two well-known conservative policy figures to serve as interim advisors: Paul Winfree and Daniel Heil. 

Winfree served in the first Trump administration and later established a conservative think tank. Notably, he authored a chapter in the Project 2025 conservative policy roadmap advocating to shrink the Fed’s footprint in the U.S. economy. 

He also suggested eliminating full employment as part of the Fed’s dual mandate, among other changes. Heil is a fellow at Stanford University who once advised the Jeb Bush campaign in 2016 on economics.

Warsh has said he wanted a “good family fight” in debating the direction and pace of interest rate adjustments. He may get it in the coming months.