We are Fed Watchers. In his Senate Banking Committee hearing yesterday, Kevin Warsh suggested that under his leadership, we might have less to watch. He advocated ending current "forward guidance" practices, which means no more quarterly Summary of Economic Projections, including the Dot Plot (chart). He suggested that a press conference after FOMC meetings should only be held when there is "important news" to deliver, rather than as a mandatory, periodic routine. He implied that the volume of current Fed speaking engagements may be excessive and counterproductive to clear policy signals. Under his leadership, the Talking Fed Heads on the Federal Open Mouth Committee will talk less. Woe with us! What are we going to do for a living?
(1) Warsh on inflation. At least Warsh didn't call for abandoning the 2% inflation target in his "regime change" (chart). But he argued for a "stricter approach" to inflation targeting and a "new inflation framework" to replace the current regime. Warsh heavily criticized the "Flexible Average Inflation Targeting" (FAIT) framework adopted under Jerome Powell in 2020. He described it as a "fatal policy error" because it intentionally allowed inflation to run above 2%, which he argued led to the post-pandemic price surge. He advocated for narrowing the Fed's focus back to its "core mandate" of price stability, implying a return to a more rigid interpretation of the target.
Instead of changing the inflation target, Warsh wants to move the Fed away from using the PCED inflation rate. He explicitly stated a preference for "trimmed averages" and "median measures." However, they tend to understate inflationary pressures.
