Kevin Warsh’s reform-focused approach is already winning support on the global stage
By Bryan Mena, CNN
Washington (CNN) — Federal Reserve Chairman Kevin Warsh isn’t alone in arguing that central banks should stop trying to predict the economy: A slew of top central bankers said Wednesday they also question the practice of speculating about the economy’s future path.
“We have found common cause,” Warsh said Wednesday during a panel hosted by the European Central Bank in Sintra, Portugal. That was in response to ECB President Christine Lagarde, who said: “I have one regret, it’s to have felt bound and compelled by forward guidance.”
Bank of England Governor Andrew Bailey and Bank of Canada Governor Tiff Macklem also said they oppose the practice.
In central banking, “forward guidance” is when policymakers signal where interest rates may be headed in the spirit of transparency. But as Warsh has noted, that’s less useful in times of high uncertainty, when no one truly knows what will happen. All four central bankers on the panel resisted giving forward guidance throughout the conversation, despite attempts from the moderator to get them to delve into the economic outlook.
“You’re back to forward guidance. I’m going to disabuse you of trying to extract that,” Warsh said to the moderator. “No forward guidance, no forward guidance.”
Warsh’s latest comments come as the US economy and Wall Street try to move past the economic disruption of the conflict in the Middle East, even though officials are still engaged in peace talks. The Iran war has pushed US inflation to a thee-year high, according to the Personal Consumption Expenditures price index, raising the chances that the Fed may need to cool the economy by hiking interest rates for the first time since 2023.
“There is a willingness by my colleagues in the central banking community around the world to go back to first principles. We all want to make the best decisions we can,” Warsh said.
The outlook, without forward guidance
In their latest economic projections from last month, nearly all Fed officials penciled in either a rate hike this year, or holding borrowing costs steady. Only one Fed official projected a rate cut this year. That means Warsh doesn’t have nearly enough votes to deliver a rate cut this year, since the Fed’s rate-setting committee make consensus-based decisions on rate moves.
Warsh in his first news conference after last month’s policy meeting emphasized the importance of getting inflation back down to the Fed’s 2% target.
Some investors categorized those remarks as more “hawkish,” or tough on inflation, than expected. He reiterated that commitment to tamp down inflation on Wednesday: “We’re going to deliver price stability in the US.”
The Fed new chairman last month announced five task forces to review factors affecting the Fed’s monetary policymaking, including productivity. That’s a sign that Warsh perhaps isn’t as hawkish as he seems, and still wants to find a way to cut rates this year. Last year, he said AI could pave the way for rate cuts if the technology can meaningfully boost productivity.
He noted productivity’s upswing over the past year and hinted that it may remain on that trend: “Nothing is in the bank at this time of consequence, but if the last four quarters are an indication, which is really largely before the advent of the new surge in what artificial intelligence can do, think there’s reason to be optimistic now.”
Wednesday’s event was the new Fed chairman’s first time participating in an external public event.
At one point, Warsh was asked his opinion on the latest Supreme Court ruling that is keeping Fed Governor Lisa Cook in her role for now. He said “I believe in the rule of law” and that “we’ll follow the Supreme Court decision.”
The-CNN-Wire
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