The Federal Reserve left interest rates unchanged Wednesday, but Chair Kevin Warsh had plenty of other changes in mind.
Warsh announced plans to overhaul the central bank's meeting schedule, reducing the number of times policymakers formally vote on interest rates each year and setting aside more time for broader discussions about monetary policy.
Nearly half a year into his tenure, Warsh is beginning to put his stamp on the institution. But while his plans for how the Fed should operate are coming into focus, Wednesday's press conference offered little clarity about what would persuade policymakers to raise interest rates again.
The Fed held its benchmark rate steady between 3.75% and 4%, leaving open the possibility of another quarter-point increase at its final meeting of the year in December.
Asked why policymakers would wait until then if another rate increase was warranted, Warsh pointed to the need for more economic information.
He described the coming weeks as an "information rich" period, suggesting that policymakers would have a better understanding of the economy by December. What he didn't explain was which developments in particular might change their minds.
The Fed will receive additional readings on inflation, employment and economic activity before its next meeting, as it does ahead of most policy decisions. But the case for waiting is complicated by the central bank's own assessment of the economy.
Policymakers described economic activity as continuing to expand at a solid pace, even as inflation remains above the Fed's 2% target. Those conditions could give the central bank room to raise rates further without jeopardizing growth.
Warsh has made clear his dislike of forward guidance, the practice of signaling future interest-rate decisions to financial markets. But there is a difference between declining to commit to a future decision and explaining what would justify one.
"The press conference was tough on inflation in words but soft on action. Warsh's refusal to give forward guidance risks being self-defeating: The market-driven restraint he's counting on eased as the front end rallied," said Ali Hassan of Thornburg Investment Management.
Warsh suggested that the Fed's earlier tightening may already be having its intended effect; mortgage rates and other interest rates have risen in recent months. Higher interest rates can slow borrowing, spending and investment, easing pressure on prices.
"The overwhelming judgment is that what we've done in this monetary medicine is starting to work some, but there's no firm conclusions," Warsh said.
He also suggested that interest rates may already be at an appropriate level.
That leaves policymakers with two interpretations of the same economic conditions. If higher rates are beginning to slow the economy, the Fed may have reason to hold steady and allow the effects of its previous moves to build. But if growth remains strong and inflation stubbornly elevated, there may be room for further tightening.
Warsh, meanwhile, is moving ahead with a grand rethinking of how the central bank makes decisions.
Beginning in 2027, the Fed will reduce its number of scheduled voting meetings from eight to seven, reserving one meeting for broader discussions of monetary strategy without a policy vote. By 2028, it plans to hold six voting meetings and two devoted to strategy.
"Getting policy right involves assessing near-term developments at timely, regular and information-rich intervals," Warsh said Wednesday.
The announcement follows the creation of five task forces charged with examining how the Fed evaluates the economy and conducts monetary policy. Their first reports are due by the end of the year, although Warsh acknowledged Wednesday that some may miss that deadline.
"I think some, but not all of the groups will probably hit their deadline and turn their homework in on time," he said. "But that just begins the process."
Warsh said the findings would bear fruit in a future policy debate and were "unlikely to find their way into this policy conjuncture."
By December, the Fed will have another round of economic data and updated projections of where officials expect interest rates to go. Whether that information will be enough to justify another increase remains uncertain.
Warsh is laying out a plan to change how the Fed makes future decisions. Wednesday offered less insight into how it will make the next one.
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