Perhaps the only thing that can be said with certainty about Kevin Warsh’s press conference following his first meeting as Federal Reserve chair this week is that he will have a captive audience.
Warsh has a history of pressing for rate hikes. However, over the past several months as he campaigned for the role, Warsh promised major changes at the central bank and rate cuts — the White House’s preferred policy outcome. Now, economists will be watching for any signs of those promised changes, including to the press conference itself.
“The inaugural post-meeting press conference will be ‘must-see TV,’” said Michael Gregory, deputy chief economist at BMO Capital Markets, in a note to clients.
“We don’t really know. It could be a genuine surprise next week. I’m very open-minded to what he says and how he positions policy on a range of things,” said James McCann, senior economist at Edward Jones.
Warsh vowed “regime change” at the Fed and focused on a few main areas of concern, including how the Fed communicates and the size of the Fed’s balance sheet. Fed watchers will get a sense this week of how he’ll attack those priorities.
The quickest way to make his mark
Warsh was sworn in a little over three weeks ago. The area that Warsh can most quickly affect change is his press conference Wednesday, because that has always been the sole prerogative of the Fed chair.
Will it be shorter and terse? Just how combative will he be when he gets questions about the risks of rising inflation, which has been above the Fed’s target for more than five years? These are some of the factors Wall Street and Washington will be focused on this week.
Economists also don’t know how Warsh will approach interest-rate policy.
His 18 colleagues in the leadership of the Fed and the 11 other voting members of the rate-setting committee appear to be inching close to rate hikes, to battle persistent inflation.
Economist Julia Coronado said she expects six Fed officials to pencil in a rate hike this year. That’s a big shift. In March, none of the central bankers projected a tightening.
“It all puts Warsh in a difficult position. He campaigned for the job with a promise of rate cuts, which the executive branch has called for. But the recent rise in prices, and the broadening out of inflation, make any rate cuts difficult. It’s this quandary that will define the start of the Warsh era at the Fed,” said Joseph Brusuelas, chief economist at RSM U.S., an audit, tax and consulting firm based in Chicago.
Another key to watch is the Fed’s projection for 2027. Some economists think the big change from Warsh will be that he doesn’t contribute to the Fed’s so-called dot plot of the forecasts of where each member thinks the benchmark interest rate will be over the next three years.
At the moment, the median Fed dot plot calls for a rate cut next year. If that stays in the Fed’s projections, it give Warsh “a nice middle ground” to say that policy is in a good place and would react to higher inflation, but that they are ready to cut if inflation is cooler next year.
Possible pushback
Warsh could push back against possible rate hikes and downplay inflation concerns, echoing recent comments from White House officials, according to some experts.
Richard Moody, chief economist at Regions Financial Corp., thinks Warsh could start to lay out the case for a resumption of interest-rate cuts once inflation pressures have begun to abate. He may remind listeners of his view that AI could drive faster productivity growth that might allow for lower rates.
Still, some economists say it’s possible Warsh will pivot and embrace the idea of potential rate hikes, turning his back on Trump.
Warsh may also float another strategy for cooling the economy. Ben Emons, the founder of FedWatch Advisors, said in an interview with the Central Bank Central Substack that Warsh will suggest shrinking the Fed’s balance sheet, commonly known as quantitative tightening, which can help slow inflation without rate hikes.
It’s very unlikely the Fed will make any change at its June meeting to the benchmark interest rate, now set in a range of 3.5%-3.75%.
Overall, it’s likely that Warsh’s changes to the Fed will look more like ”an evolutionary process than a revolutionary one,” BMO’s Gregory said.
Coronado said she expects Warsh will announce a comprehensive review of monetary-policy strategy and communications that includes re-evaluating the dot plot and economic forecasts.
She said she doesn’t expect any dissents at the meeting as Fed officials are “going to give him a certain grace for this meeting,” and agree that the central bank has time to wait and see how inflation progresses.
