Fed Chair Kevin Warsh Rejects Forward Guidance as the Fed Raises Rates

Federal Reserve Chair Kevin Warsh has reiterated his view that the central bank should stop issuing forward-guidance forecasts, a practice dating back to former Chair Alan Greenspan. After the Federal Open Market Committee (FOMC) voted unanimously to lift the federal-funds target range by a quarter point to 3.75 %–4.00 %, Warsh said he will not pre-judge any future decisions the panel makes.

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The rate hike came after the Bureau of Economic Analysis reported a 4 % annual personal consumption expenditures (PCE) price index for August, down from 3.7 % in July. Core PCE, which excludes food and energy, rose 3 % year-over-year. Following the data release, the CME FedWatch tool showed traders assigning a 63 % probability that the Fed will hold rates steady at its next meeting, a sharp reversal from an earlier ?70 % chance of another quarter-point increase.

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• John Williams also emphasized the need to monitor incoming data ahead of the next FOMC meeting.

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Commentators note that Warsh’s reluctance to give forward guidance leaves the Fed without a clear anchor. Dan Alpert, executive chair at Westwood Capital, described the situation as a “whisper campaign” and suggested Warsh “had to reclaim his credibility” by allowing the market to infer a hawkish stance. Robin Brooks, senior fellow at the Brookings Institution, argued that the dovish PCE reading makes an October hike “off the table,” though the upcoming FOMC meeting will occur less than a week before the midterm elections, a timing that historically has not prevented rate hikes.

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• “I don’t think they … feel compelled to follow [Warsh] on [not providing forward guidance]. I don’t think they’re sticking their finger in the eye. I think they’re just like, ‘That’s your view. This is our view,’” — Stephen Myrow, the managing partner at Beacon Policy Advisers

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• “With the policy action we took at our September meeting, there is no need for urgency, and we have time to gather more information,” — Williams

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• “Warsh had to reclaim his credibility after his initial pressers and so they hiked [by] 25 [basis points]. His lack of candor regarding anything other than he’s ‘serious about inflation’ leaves the Fed-dom without an anchor,” — Dan Alpert, executive chair at Westwood Capital

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• “I don’t think he necessarily wanted to raise rates, but he kind of boxed himself in with the Jackson Hole speech,” — Stephen Myrow, the managing partner at Beacon Policy Advisers

The Hill