By Greg Robb
The new Fed chair has set up five groups consisting of insiders and outside experts to examine practices central to setting interest rates
Federal Reserve Chair Kevin Warsh speaks to reporters during his first news conference on Wednesday.
During his first press conference as Fed chair Wednesday, Kevin Warsh repeated one refrain in his answers to many reporters' questions: that a task force is looking into it.
These new task forces - Warsh announced five on Wednesday - could allow the central bank to put off any decision on interest rates until the end of the year.
At his press conference, Warsh announced he was setting up five groups consisting of Fed insiders serving alongside outside experts to examine practices central to setting interest rates, like how the Fed assesses inflation and what data are used to track the economy.
Task forces will be set up on the Fed's framework for communication, balance-sheet policy, data sources, productivity and jobs, and inflation. Warsh indicated that he expects these groups to report back later this year.
"Warsh's framing of their remit and timeline suggests that he loosely prefers to maintain the status quo for the next few meetings, absent further surprises in the economic data," said James Egelhof, chief U.S. economist at BNP Paribas.
Some observers believe the Fed would prefer not to make any move on interest rates until after this November's midterm elections.
Opinion:
Trump picked Kevin Warsh to cut rates. The new Fed chief just told us he has other plans.
Fed watching is looking very different now. Two charts can help you in the Warsh era.
These stocks are in trouble after Fed Chair Kevin Warsh removed the market's guardrails
Markets were surprised Wednesday when the Fed disclosed that nine of its 18 top officials think the central bank should raise interest rates this year to bring inflation under control. Six officials saw the need for more than one hike.
In the wake of that announcement, some economists say the hike could come in July or September. Traders in derivative markets see a 36% chance that the Fed raises rates at its next meeting in late July.
Egelhof said that even with the task forces, the Fed could still increase rates earlier than December. For example, a blockbuster jobs report early next month could prompt a hike, he said. BNP Paribas is forecasting the Fed will hike three times in succession starting in December.
Warsh refused to get drawn into the question of when the central bank might hike.
"We'll be meeting in six weeks. We'll take up the issue again," he said.
Could the Fed's next move be a rate cut?
Some economists think the Fed will hold rates steady all year, and estimate that the next move will be a rate cut in the summer of 2027.
Tom Simons, chief U.S. economist at Jefferies, said another handy feature of the task forces for Warsh is that they allow him to avoid having to answer press questions on major potential policy changes at every FOMC meeting for the remainder of the year. Warsh will be able to lean into the inherent uncertainty and say the issues are under study.
"When asked about progress of the task forces, Warsh can reasonably say that he is eager to see the results of the work done by the task forces and that he is looking forward to vigorous debate over potential changes that will be announced when they are ready," Simons said in a note to clients.
The membership of the task forces will be important in signaling the seriousness of the exercise, said Julia Coronado, president of MacroPolicy Perspectives.
For instance, Warsh has roots in Silicon Valley, and he could invite tech executives with little experience in managing the economy to participate.
"The big question is whether these task forces are set up to deliver credible outcomes that improve monetary policy, or are they excuses to implement an agenda of reduced transparency," Coronado said.
Who ultimately sits on the task forces will be revealing as to what their processes entail and how balanced and credible their conclusions will be, she added.
Many observers are still skeptical that Warsh is truly independent from the White House.
"This is the most political Fed chair we've ever had," Coronado said.
Eugenio Aleman, chief economist at Raymond James, said Fed watchers could be waiting a long time for any insight from the task forces.
"I don't know if six months are going to be enough for an institution that typically takes a long time to make decisions," he said. "The inflation framework is at the core of the Fed's work."
Comments