It’s standard practice for Federal Reserve officials to steer clear of politics and “stay in their lane,” as Kevin Warsh, President Donald Trump’s Fed chair nominee, described it Tuesday at his confirmation hearing.
That lane is intended for managing the economy by setting interest rates at levels to fulfill the central bank’s congressional mandate for stable prices and maximum employment.
Yet when senators on the banking committee pressed Warsh on topics well within his lane, like what’s driving inflation, he left his views vague. That isn’t incidental. It reflects Warsh’s broader push to rethink how Fed officials broadcast their views on the economy and the path of interest rates.
Asked whether he agreed with several Fed officials who’ve recently said they believe higher tariffs Trump enacted are driving prices higher, Warsh said simply, “I don’t.”
But he then complicated that certainty by arguing that the government’s standard inflation gauges don’t fully capture what’s happening in the economy — and that, if confirmed, he would push to rethink how inflation is measured altogether.
“I want to know what inflation really is,” he said, adding that “there’s some work to do” on how it’s calculated.
Then, when asked whether he believed a rate cut eight times the size of a typical move by the Fed could cause prices to spike, Warsh responded, “Unlike many of my colleagues past and present, I don’t believe in forward guidance.”
“I don’t believe that I should be previewing for you what a future decision might be,” he told lawmakers.
That marks a stark departure from steps the central bank has taken in recent years to communicate more with the public on past and future monetary policy decisions.
The rationale was that the better the public understands how central bankers arrive at decisions, often through providing what’s commonly referred to as “forward guidance,” the easier it is to achieve policy objectives.
That’s because markets will have already priced in the next possible move, making it easier for the Fed to introduce policy updates. Surprising the markets can have the opposite effect. And there’s solid research that backs that up.
That said, Warsh still gave forward-looking guidance in his testimony.
He highlighted how he believes advancements in AI will make it easier for the central bank to keep rates lower, since productivity gains can drive economic growth without causing inflation.
“The simple act of saying you’re going to cut for ‘x’ reason is in fact forward guidance,” Wells Fargo economists wrote.
If Warsh is confirmed as Fed chair, he may have the authority to do away with press conferences, reduce the frequency of the high-profile, closely watched monetary policy meetings — which he has already hinted at — and limit his own speaking engagements.
One thing he won’t be able to escape, however, is answering to Congress. And wishy-washy responses to lawmakers’ questions, should the economy take a turn for the worse, are unlikely to fly.
