Kevin Warsh Has Defined Success. Now He Needs To Deliver It

The Federal Reserve held rates steady at its June meeting. That wasn’t the story.

What mattered: Kevin Warsh sees a credibility crisis. The fix is to deliver on past promises, not signal the future.

I’ve known Warsh since 2002, when we worked in the White House. What struck me then, and again this week, is his instinctive skepticism toward Washington’s reflex to intervene

For five years, inflation ran above target. The institution charged with price stability watched prices climb while assuring the public it was “transitory.” It wasn’t.

At his first press conference as chairman, Warsh did something rare: he said what he meant. The statement is shorter; the language plainer. Forward guidance—the Fed’s habit of pre-announcing its intentions—is gone, with Warsh calling it “not well-suited to the current policy conjuncture.”

Forward guidance made sense in 2009, when rates were near zero. It outlived the emergency. Markets learned to watch central bankers more than the economy. Warsh is breaking that habit, consistent with his long-held view that discretionary, meeting-to-meeting policy amplifies the instability it’s meant to prevent.

Hampered by incomplete, imperfect information, and facing long and variable lags, central banks are ill-suited to discretionary fine-tuning amid exogenous shocks that can upend the best-laid plans.

The task forces Warsh announced are designed to refocus the institution, question past practices and get monetary policy right. Two stand out. The data task force asks whether the Fed relies on outdated information — survey methods built for a different economy, payrolls repeatedly revised, while private firms run on real-time data. The inflation framework task force asks whether the Fed has drifted from the discipline price stability requires.