For Warsh as Fed chair, silence may be the point

Markets head into the first Fed meeting run by new Chair Kevin Warsh with almost no idea what he thinks about the recent surge in job growth, the acceleration in inflation or the path of interest rates.

And that may be by design.

Warsh has strongly criticized Fed communications, saying they have led to policy errors and placed the Fed more at the center of market decisions and the economy than it should be. His plans for “regime change” include a rethink of how the Fed forecasts and talks about its plans for monetary policy. That appears to include both quantity and frequency.

“If you ask me my true personal opinion right now, Fed chairs and other central bankers around the FOMC, they speak quite frequently,” Warsh said at his confirmation hearing in April, referring to the Federal Open Market Committee. “I would say this, I think truth-seeking is more important than repetition. If one has a press conference, one wants to deliver some important news.”

The immediate short-run question is where Warsh stands on the issue of removing a signal in the Fed’s policy statement to markets that the central bank hopes to keep cutting rates. The “easing bias” is part of the FOMC statement that signals additional rate cuts. Three FOMC members dissented in the last meeting, signaling they wanted the Fed to stop leaning toward cuts.

And so-called Fed speak, in which every word is parsed by markets, may become even more subtle.

JP Morgan Chief Economist Michael Feroli doesn’t think Warsh will say he’s “open” to rate hikes, “but I could see him saying he can’t rule it out.”

Removing the easing bias would dovetail with Warsh’s longer-term desires for the Fed to reduce how much it telegraphs its next move.

In 2014, after he’d left an earlier term as a Fed governor, Warsh led an internal review of the Bank of England’s communications strategy and generally argued for greater transparency but less communication overall. He called the BOE’s monthly meeting schedule “sub-optimal” and recommended reducing their annual number from 12 to eight.

“Outside of crisis periods, the economic landscape tends to change rather slowly. It is rare indeed that the economy changes so rapidly that adjustments to monetary policy are needed at four-week intervals,” Warsh wrote in the report.

Just last year, Warsh echoed those ideas in a speech at the Hoover Institute, saying, “Fed leaders would be well-served to skip opportunities to share their latest musings…The swivel chair problem, rhetorically waxing and waning with the latest data release, is common and counter-productive.”

The Fed has already announced that Warsh will hold a press conference after the meeting next week, suggesting at least initial adherence to immediate past Fed Chair Jerome Powell‘s practices. But, in his Senate testimony, he wouldn’t commit to holding them after every meeting. That has led to speculation he could go back to holding them four times a year, the same frequency before Powell upped them to every…