Kevin Warsh task forces are key to understanding the new Fed

Chairman Kevin Warsh’s 43-odd minutes at the Federal Reserve‘s podium Wednesday were intended to deliver the message that, slowly but surely, he will set about making the Fed quieter, more humble in its engagement with the markets and the economy, and — ultimately — laser-focused on inflation. 

“I’ve said for years inflation is a choice,” Warsh told reporters. “You bet it is.”

Warsh sees his confirmation as Fed chair as a mandate to deliver far-reaching change to the Fed, intended to get the Fed out of the business of allowing inflation to run too hot. At his first press conference, he gave a roadmap to how that change will come about. He also gave some hints as to where he may face the biggest risks. 

Warsh’s initial changes to the Fed are in some ways modest. The 12 members of the rate-setting Federal Open Market Committee voted unanimously to hold interest rates steady at 3.5-3.75%, just as traders have expected for weeks. 

But behind the scenes, much is changing — even in the process of how the Fed came about making that core decision. 

Prior Fed chairs had offered different policy statements for the committee to consider. Warsh changed that.

“There was one proposal on the table,” Warsh said. “The group was unanimous and unambiguous on it.” 

That shift and others show Warsh carefully marshaling his political capital for the bigger alterations he has planned. 

The bulk of Warsh’s prepared remarks at the top of the press conference — and much of the discussion with reporters that followed — was spent detailing a series of task forces. These will deal with communications, the balance sheet, data, productivity and jobs and the Fed’s inflation framework, Warsh said. They will pair internal Fed staff with external experts, whom Warsh said he is in the process of selecting. 

Warsh’s task forces have the ring of the classic do-nothing government blue-ribbon commission, but they are central to his theory of change at the Fed. Warsh’s authority as Fed chair is largely delegated by the Fed’s Board of Governors and the wider FOMC. The task forces are an attempt by Warsh to prompt the Fed’s other members to come around to his way of thinking all on their own, with a little helpful guidance from the outside experts he selects. 

Warsh also pointedly declined to submit an economic forecast to the Fed’s Summary of Economic Projections, which includes its famed “dot plot,” though he allowed his colleagues to do so because “that’s the commitment that the FOMC made.” 

By withholding his own views about where interest rates are headed, Warsh effectively devalues the rest of the Fed’s views. Any discussion about the future path of interest rates now has to include the caveat that the Fed’s most influential…