MW Why a Fed communications 'blackout' isn't coming to markets under new Warsh regime
By Joy Wiltermuth
'There's a First Amendment,' says Pimco's Richard Clarida, a former vice chairman of the Fed's board of governors
New Federal Reserve Chair Kevin Warsh will oversee his first Fed meeting next week
Markets have been on edge about what "regime change" at the Federal Reserve might look like as Kevin Warsh prepares for his first meeting as chair next week.
There's a worry that Warsh may take away some avenues of Fed communication that academics and Fed watchers seem to really like. That risks leaving the public more in the dark at a time when inflation and borrowing costs both are concerns, and there's anxiety around artificial intelligence and the economy.
Warsh might address some of those issues Wednesday at the conclusion of the Fed's June 16-17 meeting. The new chair isn't big on Fed officials making frequent speeches, nor on holding press conferences after each rate decision, according to his April confirmation hearing. He also criticized the Fed's recent use of "dot plots" as a way to show the public a possible path forward for interest rates. The June meeting is scheduled to include updated information.
That has Wall Street nervous about potential rate volatility, particularly if the Fed suddenly says less than it has been over the past 30 years - or leaves markets doing more guesswork. Rising inflation already has the bond market pricing in Fed rate hikes, not the cuts that President Donald Trump wants.
That angst in markets isn't surprising, given that it can take "weeks or months" to adjust to a changing of the guard at the helm of a central bank, according to Richard Clarida, former vice chairman of the Federal Reserve's board of governors from 2018 to 2022, and now a global economic adviser at Pimco.
Yet there's one simple thing that could prevent markets from hearing less from the Fed in general - even if Warsh doesn't like it.
"There's a First Amendment," said Clarida on Thursday, during a Pimco press briefing, speaking to the right of free speech and the Fed's 12 regional presidents and seven governors. "They can give interviews to you. They can go on CNBC. They are going to communicate."
What could change, however, is the extent to which Warsh tries to "corral the committee to have committee-forward guidance" on rates, he said. "I can tell you, having done it for four years, that's an order of magnitude more difficult."
Goldman Sachs found that increased uncertainty around the near-term path of rates corresponds to a higher term premium, for a difference of about 5 basis points in the benchmark 10-year Treasury yield BX:TMUBMUSD10Y. That makes better communication since 2004 "low-hanging fruit to reduce borrowing costs," economics researcher Friedrich Schaper wrote in a Thursday client note.
The benefits have been particularly acute during periods of shocks, including the global financial crisis and COVID, he said. Yet there's more ambiguity around the upshot of the introduction of press conferences and the dot plot in 2012, which Schaper said leaves "scope to reform" the Fed communications.
Rate volatility hurts market liquidity, raises borrowing costs for households and companies, and ripples through the stock market. The S&P 500 SPX, Dow Jones Industrial Average DJIA and Nasdaq Composite COMP have been whipsawed lately by a selloff in hot AI-related parts of the market, due partially to fears of higher rates for borrowing.
For now, forward guidance on rates might matter less than it did a few years ago when the fed funds rate was ultra-low, said Daniel Ivascyn, group chief investment officer at Pimco, during Thursday's media briefing.
Forward guidance on rates under a Warsh Fed may not be as crucial to markets as in the recent past, says Pimco.
"Today, with the fund's rate where it is, from a market's perspective, it is less important," Ivascyn said. The upper limit is 3.75%, underscoring the discord between the Fed and markets, given the policy-sensitive 2-year Treasury yield BX:TMUBMUSD02Y is at 4.06%.
Former Fed Chair Jerome Powell in April said he was "never the world's biggest fan of the dot plot," during his final press conference at the helm of the central bank. But "you can't beat something with nothing," he added.
The Fed was criticized for not giving markets a stronger signal that it would dramatically hike rates in 2022 and 2023. The rate shock that followed triggered a regional banking crisis that included the collapse of Silicon Valley Bank and several other lenders.
"Things happen, the picture changes," said Ivascyn about forward guidance on rates. Market assumptions tend to "get in front of the central banks" when things happen - like a war breaking out, he added.
For Clarida, the question is how Warsh will "put his own stamp" on Fed communication. "But we're not going into a Fed blackout, in terms of conversation or communication."
-Joy Wiltermuth
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(END) Dow Jones Newswires
June 12, 2026 07:00 ET (11:00 GMT)
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