The Fed is dead. Long live the Fed.

In his first FOMC press conference yesterday, following a decision to hold the federal funds rate steady at 3.5%-3.75%, new Fed Chair Kevin Warsh outlined a vision for evolving the Federal Reserve’s operations through greater focus on its core dual mandate (price stability and maximum employment), reduced forward guidance, and structured reviews via task forces. Warsh strongly emphasized the FOMC’s unanimous commitment to delivering price stability, noting that inflation has run well above the 2% target for over five years and remains a burden on households. He stated that “the recent past need not be prologue” and that “inflation is a choice.” He also announced that forward guidance will be stopped. Warsh announced the formation of five task forces to conduct fresh reviews starting from “first principles”. These task forces are: (1) Fed communications: expected to propose changes, including potentially to the Summary of Economic Projections (SEP/“dot plot”). Warsh himself did not submit projections, consistent with his skepticism of the current framework. He signaled a preference for less frequent or more purposeful communication. (2) Fed’s balance sheet policy: the team will be reviewing the ample reserves regime, asset composition, benefits/risks, and alternative frameworks. (3) Use and reliance on existing data sources: Evaluating new data sources, methodological improvements for more timely, accurate, and actionable economic information. In other words, the Fed will likely change the metrics used to track inflation. (4) Productivity and jobs in an era of transformation: Examining impacts of technologies like AI on the economy and implications for the Fed’s mandates. (5) Fed’s inflation frameworks: Re-examining inflation drivers and a full range of approaches to achieving price stability in a changing economy. The bottom line? In his first conference, the new chairman communicated how the Fed will work going forward and reiterated the compromise to control inflation and maintain full employment. Vague on his comments aa to specifically how the Fed will do it, the task forces will bring the data and framework for the Fed to do its job. The dot plot might not survive this meeting, but as its stands, it indicates higher rates going forward. The next FOMC is scheduled for july 28th and 29th.

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