Watching Warsh’s debut

The Fed may have announced a decision regarding interest rates today, but that was the least newsworthy part of Kevin Warsh’s first press conference as Fed Chair.

The Federal Open Market Committee voted to keep the benchmark federal funds rate target the same—at a range of 3.5% to 3.75%—for the fourth consecutive meeting, even as inflation continues to accelerate. But since that was all but assured before today’s 2pm announcement, investors were far more focused on Warsh himself.

BlackRock Chief Investment and Portfolio Strategist Gargi Chaudhuri said in a note earlier today, “The more important question is how Chair Warsh frames inflation, AI, and the future path of rates during his first press conference.” But based on today’s announcement, analysts may have to squint to read any tea leaves.

Warsh is switching things up

Warsh is already putting his own tight-lipped spin on the FOMC process, starting with the announcement itself. The statement that the Fed released today had only 141 words; far shorter than the 300+ featured in the last two under Jerome Powell’s tenure. (Here’s a side by side comparison.) The statement also omitted how specific members voted, and offered far less information on where the Fed thought policy could be going next.

Warsh kicked off today’s press conference by indicating that it would not be business as usual at the Fed under his reign:

• Warsh likes task forces (or at least saying “task forces”). He announced five Fed task forces focused on reforming the institution, adding that the squads will hire specialists to “ask hard questions” in five areas: The Fed’s balance sheet, communications, data sources, productivity and jobs, and inflation frameworks.
• He also indicated that the Fed will keep 2% as its target inflation number.

The more things change, the more they stay the same

Fed officials have grown increasingly concerned about inflation in the wake of the Iran war, despite the central bank indicating in March that it would slash rates by the end of the year. While Warsh was considered to be a rate hawk as a Fed governor during the financial crisis, he’s changed his tune since being nominated by Trump.

Today’s dot plot, completed by 18 of the 19 members of the FOMC—Warsh himself sat this one out—painted a markedly different picture than in March. This time, nine officials expected the Fed’s benchmark interest rate to be higher by the end of the year (compared to zero in March), eight projected that rates will be unchanged, and only one said rates would be lower.

For his first major step to the mic, Warsh seems to have chosen the mystique of the mute button.—LB