Well, that didn’t take long. The new Fed Chairman, Kevin Warsh, put his immediate mark on Federal Reserve communications following this most recent FOMC (Federal Open Market Committee) meeting. In a move consistent with his dislike for excessive detail, the FOMC announcement that the target Fed Funds rate would remain unchanged at 3.5%-3.75% was extremely brief. There may be many (though fewer each year that passes, unfortunately) who remember a time when FOMC meetings were followed by just such a “just the facts, ma’am” statement, but it is certain to take modern analysts by surprise.
Despite the brevity, much was communicated in this announcement alone, especially since the press release included the every-other-meeting Summary of Economic Projections (SEP). First, the language of previous FOMC meetings that indicated a rate cut was still likely in 2026 was removed. Second, the FOMC statement ended on a terse note—“The Committee will deliver price stability”—without a reference to the dual mandate inclusion of full employment; Chairman Warsh is known to be less inclined to lean on the dual mandate as a directive for monetary action, preferring to assign responsibility for economic growth to fiscal policymakers. Third, in the SEP, the 2026 median economic growth estimate was lowered to 2.2% from 2.4% in March (though the range of forecasts remains a very large 1.8%-2.6%), and the PCE (Personal Consumption Expenditures) Inflation forecast was raised sharply to 3.6%. Fourth, there was one dot missing in the dot-plot interest rate forecast. It was immediately assumed the missing dot was that of the Chairman, something Chairman Warsh confirmed at the beginning of the press conference. The omission of the Chairman’s dot was apparently a protest action (!), his refusal to participate in a process he does not endorse. One key takeaway from both the FOMC announcement and the SEP: no one should be looking for a rate cut any time soon, and a rate hike in the second half of 2026 is not ruled out. The degree to which this is also a surprise to the markets, let alone the White House, remains to be seen.
The FOMC press conference itself seemed to be an effort in justifying why it may finally cease to exist. Other than highlighting Chairman Warsh’s rather wooden presentation style and his favorite phraseologies – “let me break that into pieces,” “ good family fight,” “inflation is a choice,” and, of course, “I have a task force for that” — the press conference consistently referenced the language of the FOMC press release with little additional elaboration. Chairman Warsh was intensely disciplined in following his statement that “forward guidance” is not useful and will not be given, full stop. Forward guidance now appears to have a much broader definition than many in the press corps realized, including not only nuanced implications for interest rate decisions but also any discussion of current and future economic statistics.
Part of the problem for Chairman Warsh in discussing economic statistics and many other topics was his early-on delineation of five “key initiatives”, each of which will have an as-yet-formed task force. These initiatives were described as 1) Fed communications, 2) the Fed balance sheet, 3) existing data sources, 4) productivity, emerging technologies and jobs, and 5) the Fed’s inflation framework. It was made clear that the last initiative was not meant to include a review of the Fed’s 2% inflation target, and the Fed balance sheet initiative did not generate much discussion. However, the others could be summed up as reflecting Chairman Warsh’s deep reluctance to use or comment on data in which he has a fundamental lack of trust in accuracy. Since he emphasized a need to better understand the “drivers of inflation,” it can be assumed he may hope the task forces can arrive at a “better” inflation measure than the Consumer Price Index (CPI) or Personal Consumption Expenditures Index (PCE) as presently measured and calculated. Both of those indices are prepared by agencies (Bureau of Economic Analysis (BEA) and Bureau of Labor Statistics (BLS) ) not under the direct control of the Federal Reserve, and the CPI is used as a cost-factor adjustment for Social Security payments, labor union contracts, and thousands of private sector contract escalator clauses. Suffice to say, this is going to get interesting.
Chairman Warsh did use the press conference to voice his support for the Federal Reserve dual mandate, in contrast to the implications of the FOMC press release. However, his remarks on this front were sometimes confusing. There was no discussion of labor markets, and his response to a final question about labor market balance was a cautious description of “what I heard during these meetings.” He also used the press conference to stress the FOMC’s “unanimous and unambiguous” agreement to deliver price stability. Note that the FOMC press release indicated that today’s vote on the target interest rate was 12-0, without dissent, a level of kumbaya somewhat undercut by the several references to “a good family fight.”
Finally, the Chairman provided a thought-provoking elaboration on the issue of forward-guidance. He explained his belief that financial markets should react to incoming data, not react to how the Federal Reserve will react to incoming data. In part, this seems to be related to his implied interest in using financial markets (and business/industry input) as an important data signal to the Federal Reserve in determining any particular course of action. There is much to be evaluated in these remarks (there is indeed a task force for that, remember!), but for the moment this might be termed the Economists’ Full Employment Act. Economics Ph.Ds. (and probably a few mathematicians, physicists, and data engineers) everywhere are no doubt spiffing up their resumes to help market participants make their own sense out of the fuzzy economic signals out there everywhere.
