Kevin Warsh made his first outing as Federal Reserve Chairman on Wednesday, and one can only hope this is not how he means to go on. The public saw initial evidence of the donor class’s agenda, and a carefully stage-managed process to deliver it—a cloak for the wreckage the Fed’s public mission now faces.
The central bank’s policy decision—to maintain the target fed funds rate at 3.5%-3.75%—hadn’t been in doubt before the Federal Open Market Committee meeting. The real question was whether Mr. Warsh would permit the public dissents that might have told the public why: the previous public views of some governors that a rate increase was called for to combat inflation running at 3.8% were on the record. The news was that Mr. Warsh managed to produce a unanimous vote by offering no direction—silencing those dissents. Some of his own colleagues wanted to raise rates. Warsh crushed them into line.
One manifestation of the Wall Street influence was the statement. Delivering only four terse paragraphs, the FOMC gutted the forward guidance it has offered about whether it might raise or lower rates in the future—a gift to traders who thrive on volatility and a blow to working Americans who benefit from knowing where policy is headed. Opacity is not a principle; it is a cover.
The FOMC did publish its quarterly summary of economic projections, including the dot plot of projections about the path of inflation and interest rates. The quarterly projections laid bare a committee at war with its new chair: nine of Warsh’s eighteen colleagues on the rate-setting committee supported higher rates this year, with six of those supporting two quarter-point increases. But Warsh didn’t submit his own projections, consistent with his longstanding contempt for public accountability. He conveyed his indifference to inflation’s toll by declining to commit the institution to any specific target—refusing even the minimum accountability of naming a number. A hollow posture from a chair who won’t put his own numbers on the table. The Committee, Mr. Warsh, is not a monarchy.
As his backers intended, the era of forward guidance is over. Warsh avoided commitments during his post-meeting press conference about the future path of interest rates, despite reporters’ legitimate efforts to get answers. Markets may be under-reacting to those dot plots given his transparent dismissal of the dot plots as penciled guesses—a confession that the Fed’s word is now worth less than the paper it is written on, and a signal that the only direction that matters is the one the donor class has already sketched out.
This is an effort to replace the Fed’s responsibility to the public with a financial market free-for-all. Warsh argued that financial markets perform best when they react to incoming data rather than anticipating the Fed’s response—that working Americans are better served by market guessing games than by clear central-bank communication—a doctrine that serves traders and asset-holders, not households trying to plan their lives. Translation: the Fed should be a silent partner to Wall Street, not a public guardian.
While silent on future policy, Warsh laid out his process for Fed capture—a series of review panels, presented as broad institutional self-examination but designed to bury the resistance the central bank needs under a layer of consultant-class process. Covering the Fed’s balance sheet, its communications, and its inflation framework, the panels are designed to provide intellectual cover for a Wall Street agenda that is already determined.
Most ears perked up at the mention of the balance sheet, since Warsh is a long-time advocate of draining the reserves that working households and small businesses rely on. The FOMC statement “reaffirmed” the Fed’s so-called ample-reserves regime, code for the current balance sheet. It is a temporary reassurance that Warsh won’t move recklessly—before he moves recklessly.
Instead, this task force will explore how the Fed could implement monetary policy and maintain stability in the banking system with a smaller footprint—meaning fewer reserves in the financial system and a payments pipeline that serves Wall Street’s preference for lean government. Shrinking the Fed’s footprint will change how the central bank interacts with the financial system, and that debate is long overdue as a question about whom the system serves—not as the foregone conclusion Warsh’s backers have already reached. The changes that kept the economy alive after 2008 were not a mistake. They were the difference between a financial crisis and a generation-long depression.
Some are interpreting the task forces as a responsible process, but that is a mistake. They are choreography—a signal that Warsh wants to bring in hand-picked experts, his fellow travelers from the donor-class seminar circuit, to lend a veneer of deliberation to a predetermined Wall Street reform. This is capture of an institution that serves the public, disguised as careful process that can persuade and be durable. The capture of an institution that once served the public, dressed as a careful process to make it durable for the people who already own everything else.
Speculation also focuses on which measure of inflation the Warsh Fed might track. Warsh’s point is bigger—and not in the way he means. Business executives routinely make decisions based on real-time data about sales, prices, inventories and the like, he said Wednesday. Yet the Fed still relies on government survey data of variable reliability subject to repeated revisions. What Warsh is signaling is a two-tier information system in which Wall Street sees more and Main Street sees less. Real-time sales and inventory data that executives use to goose quarterly earnings is not a substitute for government surveys collected for the public record. Swapping the one for the other is not modernization—it is recasting the Fed’s information diet around what CEOs need, not what citizens deserve.
Particularly dangerous was to hear Warsh on Wednesday dismiss the relationship between inflation and employment, calling it a false dilemma. The cruel choice is real for the people who live on the wrong side of it—the workers who lose jobs when the Fed tightens, the families who lose homes. The central bank does not need a more nuanced understanding of the relationship between growth and inflation—it needs to act on the one it already has. Inflation is at 3.8%, above the 2% target for five years, and Warsh’s own colleagues want to raise rates. Wrapping inaction in the language of intellectual transformation is the donor class’s oldest trick. Pretending the cruel choice does not exist because artificial intelligence and other technological changes are transforming the U.S. economy into a more efficient extraction machine is not a more nuanced understanding. It is a refusal to see what the Fed’s own rate hikes do.
Warsh is only at the beginning of the beginning of his tenure, and the damage is already being mapped out. For now, a public weary of years of inflation and too few real answers from the Fed should recognize that the new Chair knows exactly what he wants to do—dismantle the public mission of the central bank, task force by task force—and that he will do it with a process that makes the wreckage look like reform. Already clear is what it will cost the central bank’s credibility and working families’ purchasing power to serve the financial sector this obediently.
