Silence isn’t golden for a world looking to Kevin Warsh’s Fed

While forward guidance often proved counterproductive, it is the US central bank’s job to inform markets about the outlook for monetary policy, not the other way round In a report on June 20, Citadel Securities said Warsh’s “hawkish tone confounded the expectations of many in the market who had predicted a ‘dovish-come-what-may’ approach and marked a substantive change from the [former Fed chair Jerome] Powell-era willingness to look through persistently above target core inflation and (arguably) excess sensitivity to the employment side of the mandate”. However, Warsh’s unanticipated hawkishness is likely to prove far less consequential than the sweeping reforms he has instituted at the Fed. Promising to embark on “a new chapter for the central bank”, Warsh said he had initiated an extensive review of everything from how the Fed communicates with markets to the future of its massive balance sheet and the reliability of its data sources.

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