An open dispute is unfolding within the Federal Reserve regarding the proper way to communicate monetary policy, with the central question being precisely how much forward guidance the central bank should provide to markets.
Federal Reserve Governor Christopher Waller clarified his position on the central bank's outward communications during a Thursday event hosted by Reuters. He stated that effective monetary policy communication ought to focus on three key objectives: the current policy stance, the outlook for policy, and, under specific circumstances, forward guidance.
Waller's remarks were a direct response to new Chair Kevin Warsh's earlier metaphor of focusing on "playing the ball rather than watching the referee." Warsh's point was to encourage investors to pay more attention to incoming economic data trends than to the Fed's policy path itself, a position widely interpreted as a clear rejection of forward guidance.
Waller countered with his own baseball analogy about the "strike zone," arguing that markets do not need a referee to mechanically rule on every single pitch, but investors must have a baseline framework for understanding what constitutes a strike versus a ball.
Warsh softened his tone somewhat during his speech at last week's Jackson Hole symposium, emphasizing more strongly that the Fed would act on inflation running above target, though he still insisted the central bank cannot offer "a mechanical, time-tested formulaic answer."
Kansas City Fed President Jeffrey Schmid, asked during the symposium whether he was involved in the Fed's newly established communications working group, replied that he was "not really," offering further evidence of coordination limits within the institution.
Warsh's "Play the Ball" Logic: Moving Away from Forward Guidance
Warsh's "play the ball, not the referee" metaphor, floated in July, targets two tools in particular: overly explicit reaction functions, such as strictly adhering to a Taylor-rule-style policy response, and conventional forward guidance.
The logic underpinning Warsh's stance suggests that relying too heavily on forward guidance weakens the Fed's flexibility to respond to incoming data and can leave the central bank in a difficult position when economic conditions shift rapidly.
Warsh has previously pledged to reform how the central bank communicates with the public, including scrapping forward guidance and reducing the number of speeches and official statements. That strategy drew criticism from bond investors in July, who argued Warsh had failed to deliver sufficient information about the economic outlook.
Waller takes a more cautious approach. His view aligns more closely with traditional central bank communication theory, which holds that transparency itself has functional value in anchoring expectations and reducing market volatility.
While he does not oppose granting the "referee" a degree of discretionary leeway, and acknowledges that forward guidance is not appropriate at all times, he argues that a deliberately vague policy framework is equally harmful to markets.
His baseball analogy emphasizes that market participants need a "rough outline" of the Fed's reaction function, namely, a sense of how far inflation or employment must deviate from target before the Fed typically steps in.
He stressed that clearly conveying the policy direction to businesses and households helps provide the public with more defined expectations. Waller said the tool can be shelved when conditions warrant it, "but when it really is needed, I think it should be used."
A "Family Dispute" Reflects Broader Uncertainty
Warsh himself has described the discussion as a "family quarrel" within the institution.
Yet this quarrel is now playing out in public speeches before the markets, extending its impact well beyond the bounds of an internal debate.
Bond markets, for their part, are in a highly sensitive state, with global yields having risen to their highest levels since 2008.
Treasury Secretary Scott Bessent's announcement of an expanded buyback program for long-dated US government bonds has triggered broad discussion about the boundaries of policy tools.
Meanwhile, Warsh's stance on shrinking the Fed's balance sheet adds to the pressure coming from the bond market, making investors increasingly urgent in their demand for clarity in Fed communications.
Until the Fed unifies its internal communications framework, investors may need to both "play the ball" and "watch the referee" simultaneously, especially since the referees themselves are still debating where the strike zone should be drawn.
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