The new Federal Reserve chair, Kevin Warsh, promised “regime change”. This Wednesday (17) he led the first monetary policy meeting.
Under the new Fed presidency, the , leaving the base interest rate in the range of 3.5% to 3.75%.
Fed officials have hinted at a possible interest rate hike later this year to combat the recent spike in inflation linked to , according to the latest economic projections. And during the first press conference after the meeting, Warsh announced working groups “in each of the five areas that are central to the overall conduct of monetary policy.”
Warsh, who has long criticized central bankers’ practice of releasing projections quarterly, did not present his own. That was just one of the many differences from this Fed meeting: the Fed’s monetary policy statement has been reworked and is now shorter; Warsh’s press conference was also a bit shorter, at least compared to those held by his predecessor, Jerome Powell; and it looks like even more changes are on the way.
Warsh wants reforms
Warsh highlighted that the topics the task forces will discuss “are timely, important and deserve fresh analysis,” adding that he was “recruiting some of the best minds, both inside and outside the field of economics.”
The five working groups will focus on: Fed communications, including the reassessment of the Fed’s quarterly Summary of Economic Projections, which shows Fed policymakers’ individual projections for short-term interest rates; the Fed’s balance sheet; the central bank’s use of and dependence on existing data sources; productivity and jobs in an era of transformation; and the Fed’s inflation framework.
Warsh said most committees should complete their work by the end of the year and will have a “simple task: start with basic principles, ask tough questions, examine current practices, consider alternatives, and finally propose next steps for policymakers’ consideration.”
Warsh had already hinted at fewer press conferences.
Warsh on inflation and prospects
Warsh said he and members decided at this meeting not to provide “forward guidance,” or any indication of where interest rates might be headed. He said this was “not appropriate to the current political climate”.
Still, Warsh said he and his colleagues will “ensure price stability.”
“We have the ability and commitment to meet our 2% price stability target,” he said. “The commitment to meeting this goal is strong, unanimous and unequivocal. And that’s an important message that we’ve been missing over the last five years. And we’re going to fix that.”
Several of Warsh’s colleagues have already signaled, which puts the new Fed chairman in a delicate position. President Donald Trump appointed Warsh with the aim of cutting interest rates, but nearly all 12 members of the Fed’s rate-setting committee expect to either raise rates for the first time since 2023 or leave them unchanged. Only one member predicts a rate cut this year.
Warsh did not provide further details beyond what the projections and monetary policy statement indicated.
Warsh on Fed reform
Warsh said he has already spoken with Fed Inspector General Michael Horowitz about his review of the ongoing $2.5 billion renovation of the central bank’s headquarters in Washington, D.C.
He stated that a report on the existence of anomalies or errors in the planning and execution of the project should be released in the local summer.
Trump and allies have repeatedly criticized the project, claiming cost overruns reflect mismanagement, in an attempt to pressure Powell. The Justice Department had opened an investigation into the matter, but closed it earlier this year and referred it to the Inspector General.
The continuous review of the project is the reason why Powell is still at the Fed, as the Fed chair normally resigns completely from the position after the end of his term.
The Fed is a self-financed organization. And the reform is financed with its own profits, not with taxpayers’ money.
