With less than ten days to go before the Federal Reserve's September 16 policy meeting, the probability of a rate hike remains around 50%. This tense backdrop stems from the uncertainty created by Warsh, who has vowed to be the most reticent Fed Chair in modern history.
Now over one hundred days into his tenure, data from Bloomberg Economics' US research lead, David W Wilcox, shows that excluding Congressional testimonies and press conferences, Warsh has delivered just a single speech. By comparison, former Fed Chair Paul Volcker gave his first address on day 64, while Warsh waited until day 98 to do so.
"Volcker didn't deliver his second speech until day 149. Currently, the Fed's official calendar shows no other speaking engagements for Warsh besides the post-meeting press conference following the September FOMC." Wilcox told reporters. He noted that many analysts were relieved by and approved of Warsh's remarks at the Jackson Hole global central bank symposium, viewing them as a sign he had heeded and responded to widespread criticism of his July FOMC press conference.
He added, however, that whether this positive reception is warranted depends on how Warsh views the speech: as a one-off anomaly, a "new normal," or the beginning of a longer-term evolution.
Uncertainty Left for Markets
In his keynote address at the Jackson Hole symposium on August 28, Warsh answered some of the most closely watched questions, including how he forms his monetary policy views and how he communicates them. Yet, he also left many questions unresolved.
During the meeting, Warsh reaffirmed several key elements of the Fed's monetary policy framework and elaborated on his assessment of the current economic situation. This information was enough to shift market expectations. For instance, the day before his speech, federal funds futures markets implied a 36% probability of a September rate hike; by the close on August 28, that figure had jumped to 58%.
On the other hand, Warsh largely held back on his assessment of the economic outlook and offered no hints about the likely path of monetary policy beyond the September FOMC meeting. Wilcox suggested that part of the confusion stems from Warsh's definition of "forward guidance," which appears broader than how many policy analysts typically understand it. Under Warsh's framing, any discussion about the future path of the federal funds rate seems to qualify.
Wilcox explained that in its narrow sense, forward guidance is generally considered applicable only during severe recessions or financial crises, when the FOMC cannot lower the federal funds rate to its desired level. "However, over the past roughly thirty years, public opinion has held that policymakers should clearly communicate their assessments of the economic outlook and the likely direction of the policy rate." He added that under Warsh's broader definition, these all fall under "forward guidance."
Wilcox also noted, "Warsh applies the same low-key communication style he expects from his colleagues to himself. His first public speech since taking office came later than any Fed Chair since at least Volcker in 1979. During his first 103 days, he is tied with Volcker for the fewest public speeches delivered."
What Warsh Clarified
Still, Warsh's remarks at Jackson Hole were more forthright than his previous public statements. At his July press conference, he seemed evasive on whether the 2% inflation target is fixed and immovable. He clarified this on stage: "The Fed's 2% price stability goal, measured by the PCE price index, is a firm, fixed target."
Wilcox also pointed out that previously, Warsh appeared to downplay the Fed's "maximum employment" goal, but on August 28, he dispelled that impression. At the time, Warsh stated: "The Fed also has a responsibility to achieve maximum employment. Achieving both goals over the medium term is not an 'either/or' proposition."
Furthermore, "Previously, he had been vague about whether he would use rate hikes as the preferred policy tool when inflation runs too high. This led some observers to wonder, given President Trump's long-standing opposition to rate increases, whether Warsh might attempt alternative methods to tighten policy." Wilcox noted.
In response, Warsh made clear that short-term rates are the primary tool for achieving the dual mandate. He even offered some views on the current economy, calling the labor market "fairly steady" and unemployment "low by historical standards." But inflation, he said, remains unsatisfactory: "Inflation is still above the 2% target. Therefore, the Fed's primary focus right now should be on prices."
Wilcox believes these comments represent "a significant increase in transparency compared to Warsh's earlier public remarks." However, "though he revealed more about his current outlook than before, he remains largely silent on several aspects that his predecessors frequently discussed."
For example, Wilcox notes Warsh did not address his own projections for how the economy might evolve over the next year or two, nor what that might imply for the federal funds rate path. "He also did not discuss whether the more open stance at Jackson Hole constitutes a 'compromise' of his core beliefs," Wilcox said. "Previously, he even resisted discussing his own economic assessment, arguing that doing so would pollute market analysts' views, steering them toward what the Fed might do rather than the economic fundamentals themselves."
"Warsh also didn't reveal just how open his future communication style might become," Wilcox added. Thus, markets remain unsure whether he will retreat to his earlier, more restrained approach, continue with the Jackson Hole style of addressing only certain aspects of the current situation while avoiding the future, or evolve further, perhaps eventually disclosing as much as his predecessors.
In summary, "the clearest takeaway from this important speech is that, based on current information, Warsh leans toward raising the federal funds rate rather than cutting it. Inflation remains too high, and Warsh is determined to bring it back down to the 2% target," Wilcox analyzed.
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