New Fed chair's silence is speaking louder than he realizes: report
Kevin Warsh has taken over as Federal Reserve chair with a strategy few of his predecessors would recognize – saying almost nothing about where interest rates are headed.
But that silence has instead opened the door for his colleagues to fill the void, and their message is increasingly hawkish, reported Politico.
In the past week alone, nearly a third of Fed officials have publicly weighed in on the path of policy, while Warsh himself has offered little more than a defense of his own reticence. At his first press conference, he barely touched on the labor market, one of the central bank's core rate-setting metrics, and he argued that forward guidance can make policymakers "prisoners of their own words" by creating confusion rather than clarity.
But that reasoning hasn't stopped his colleagues from talking. Cleveland Fed President Beth Hammack has flagged persistently high inflation as a reason rates may need to rise. Minneapolis Fed President Neel Kashkari has shifted his own outlook from penciling in a rate cut to now expecting a hike by year's end. Fed governor Christopher Waller, an appointee from Trump's first term whose remarks markets track closely, has said he can no longer rule out further hikes.
The result, economists say, is that Warsh is ceding the narrative rather than controlling it. As Renaissance Macro's Neil Dutta put it, the chair's traditional role is to forge consensus and cut through the "cacophony" of competing voices. Without that, "you're kind of just outsourcing policy to the median swing voter."
Warsh insists markets are handling the change just fine, pointing to falling volatility and falling inflation expectations as evidence his approach is working.
But several market strategists say that confidence may be premature, predicting the current near-total silence is unsustainable over the long run and will require a slow recalibration as investors adjust to operating with far less institutional guidance than they've grown accustomed to over the past quarter-century.
“It’s going to take a while for the market to get used to [this dynamic]," said Scott Wren, senior global market strategist for Wells Fargo Investment Institute. “I view this as a multi-year period transition.”