A Little Less Talk

We knew Kevin Warsh was keen to make some updates at the Fed, and he didn't waste any time getting started.

The message from his first press conference as Fed chairman Wednesday was clear: The Federal Reserve needs a refresh.

He rolled out five new task forces that will examine how the Fed handles: communicating with the public, its balance sheet, its data sources, productivity of the economy in the age of AI, and inflation frameworks.

The written Fed statement from this week's meeting was also meaningfully shorter and included no forward guidance on interest rates. Warsh made it clear that he views forward guidance as an ineffective way to communicate Fed policy. While this gives the market less to react to, perhaps it's a good thing. In my opinion, markets tend to overreact to Fed commentary and can swing widely depending on how investors interpret its messages.

In other words, less is more.

The Case of the Missing Dot

The Fed released an updated Summary of Economic Projections (SEP), including a new dot plot, but it was curiously missing one of the 19 dots. We found out in the press conference that Warsh chose not to submit his dot — or any projections — because he wants to change the SEP's frequency and/or style.

Even without Warsh's dot, the takeaway from this meeting was that the Federal Open Market Committee has become increasingly hawkish. Half of the dots indicated a desire to hike interest rates at least once in 2026, and not surprisingly, the market reacted by pushing Treasury yields higher and stocks lower.

But it wasn't just the dot plot that skewed hawkish. Warsh reiterated the Fed's commitment to achieving price stability numerous times during the press conference. With the SEP showing projected PCE far above its 2% target, his priority right now is delivering on price stability, and the Fed has some work to do on that front.

My View on the Road Ahead

I still don't think the Fed will hike rates this year, and I realize the number of people who agree with me is dwindling. After what we heard today, I do believe Warsh will continue to talk about the Fed's mandate to control inflation — and markets will continue to interpret that as a hawkish stance. But I also believe simply sending that message will be enough for the time being.

In the end, the data needs to support the Fed's actions. Current inflation is uncomfortably high, but not because the economy is overheating. I believe the risk of a rate hike dampening growth is more important than reacting to inflation from geopolitical forces. The Fed's own projection for growth has come down since its March meeting, which tells me many FOMC members may share that same view.

As with most Fed meetings, the commentary was more important than the action. Warsh's Fed may talk less, but the talking it does will carry more weight.

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