The central bank's new chairman brings some new ideas but could face significant dissent. Will he participate in the Dot-Plot? Randall W. Forsyth
Watch what they say--and don't say--not what they do.
That inversion of a Nixon-era statement seems especially apt for the meeting of the Federal Open Market Committee this coming week, which will be the first for Kevin Warsh as chairman of the Federal Reserve. The one prediction that can be made with certainty is that the policy-setting panel will make no change in the central bank's key policy rate range, currently 3.50% to 3.75%.
Other key aspects to emerge from the confab could show points of contention within the FOMC. There could be dissents in the wording of its policy statement, as there has been at every recent meeting since last June, mostly (but not all) calling for more aggressive rate-cutting action. But April's policy statement contained three dissents from Fed district presidents who preferred to drop the bias toward future easing.
What will be especially interesting will be the Summary of Economic Projections, or SEP, from the seven members of the Board of Governors and all 12 Fed presidents (five of whom vote on the FOMC, with the New York Fed president always voting.) The last SEP was released on March 18.
And the postmeeting press conference could be especially revealing of Warsh's policy and style inclinations.
Two things to look for are how much the SEP has changed in view of all the geopolitical events, market moves, and economic data released in the past three months. What will be viewed first by market participants and analysts will be the so-called Dot Plot of interest-rate projections. Not only might that reveal a great divergence of opinion among policymakers but also, for the first time, some abstentions.
Warsh himself may not list his dots to express his opposition to so-called forward guidance, said Peter Boockvar, chief investment officer of One Point BFG Wealth Partners. "That said, other members will list their dots and some will very likely pencil in some hikes, which will highlight what I believe will be the first time in a long while where we will no longer have consensus-based monetary policy and dissents will be the new norm," he wrote in an email.
Warsh may chair a "fractious FOMC," according to Stephen Brown, chief North American economist at Capital Economics. Recent speeches suggest some FOMC members have turned hawkish, with six of 12 seemingly willing to support a rate hike if inflation remains near current levels, he wrote in a client note.
But EY chief economist Gregory Daco doubts Warsh will try to persuade the rest of the committee that additional easing is warranted. Neither, he wrote in a research note, will he push his other suggested policy reforms, including reduction of the central bank's balance sheet. (For now, the Fed will continue its $10 billion monthly Reserve Management Purchases of Treasury bills, which it says are designed to maintain stable money market conditions and are not policy related.)
Daco agrees that Warsh may opt out of publishing his own SEP numbers, given his skepticism about the usefulness of economic and interest-rate projections. He also thinks the new chair may shorten the postmeeting press conference and may reconsider whether to hold them after every meeting.
At this week's presser, Warsh will be questioned closely about the economic outlook and what might trigger a rate hike, but Boockvar looks for the Fed chief to decline to answer, given the uncertainty of the war with Iran and the status of the Hormuz Strait, which can change by the hour.
Instead, Boockvar added, "my ears are wide open for what he will say on the balance sheet." In particular, what is the right size of the Fed's assets and the proper level of bank reserves? Will quantitative easing -- the large-scale Fed purchases of securities -- be locked in a box to be opened only in emergencies? And, he wondered, given balance-sheet expansion that mainly works through financial markets, what if they respond poorly to further shrinkage?
Finally, Warsh is certain to be interrogated about Fed independence and his past expressed preferences for lower interest rates, which coincided with President Donald Trump's repeated calls for cheap money. Warsh has declared Fed independence to be crucial, while Trump said at the Fed chief's swearing-in ceremony that he should be independent and "just do your own thing."
Yet, skepticism remains, given the president's rate-cut campaign waged against Warsh's predecessor, Jerome Powell. "Mr. Warsh's greatest challenge may be preserving the Fed's credibility," says Joseph Carson, former chief economist at Alliance Bernstein.
That relates to Warsh's "controversial views on inflation measurements," notably "trimmed-mean" gauges. These are attempts to remove price outliers from other components of the index, Carson added in a LinkedIn post. For instance, the Dallas Fed trimmed-mean personal consumption expenditure index shows a 2.3% rise in the 12 months ended April, much less than the 3.8% rise in headline PCE, and close to the Fed's 2% target.
But inflation cycles vary and outliers and composition change over time. "Altering the inflation target now--with inflation already high--could severely harm both his and the Fed's credibility," he concluded.
Indeed, a group of money managers assembled this past week by Evercore ISI chief strategist Julian Emanuel found a consensus that "viewed Warsh as contorting measures of inflation to stave off the need for rate hikes."
Warsh faces the dual challenge of convincing both other Fed members and the markets of his independence and of the validity of his policy approach.
Write to Randall.Forsyth@Barrons.com
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(END) Dow Jones Newswires
June 12, 2026 21:31 ET (01:31 GMT)
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