Warsh Opens ‘New Chapter’ for Fed

Kevin Warsh just chaired his first Federal Reserve (Fed) meeting. While the vote to hold was unanimous, the immediate takeaway for investors is that rising inflation has put rate hikes firmly back on the agenda. Just as importantly, Warsh used his debut to signal an overhaul of how the central bank operates, including stepping back from the radical transparency of his predecessor, Jay Powell. 

This was a Fed that deliberately said less, promised less, and signalled more of the same to come. I don’t think markets have fully priced that in yet. Forward guidance has been dropped, maybe permanently. The dot plot survived for now, but Warsh didn't participate in it and made clear he doesn't like it. Even the closely watched press conferences are unlikely to be a given after every meeting (recall that practice only started under Fed Chair Jay Powell). Nine of 18 members pencilled in at least one rate hike for the back half of this year, while Warsh abstained from his own forecast, something we might have to get used to. 

What Warsh did offer in his first meeting was an evaluation of current policies and practices, and the potential for some significant change – what he believes will be modernization. This is worth paying close attention to. Five task forces — covering Fed communications, the balance sheet, productivity and jobs, inflation frameworks, and economic data — will report back by year end. Just as important as these groups themselves are the people Warsh has in mind for them, coming from inside and outside central banking, including the technology sector. I think this could really shape the recommendations coming from the task forces. 

Markets read this as hawkish. And not surprisingly, bond yields jumped, the S&P 500 fell, and the dollar strengthened. They weren’t wrong. 

My three key takeaways are first, rate hikes are back on the table. My base case is one to two increases before year end. The Core Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred gauge of inflation, is well above target and there are a variety of inflationary pressures that could keep it elevated. The easing cycle that investors had priced into their fixed income positioning is likely fading in the rear-view mirror. 

Second, I expect a less transparent Fed and that likely means more market volatility. The Powell era's radical transparency — dot plots, press conferences after every meeting, detailed forward guidance — seems to be over, and that is likely to result in some confusion, at least initially. We should expect sharper, less predictable market reactions to data releases and Fed communications as the new framework takes shape.  

Third, the productivity argument is worth watching. I can't help but think this is one of the more significant philosophical shifts we've seen at the Fed in years. Warsh pushed back on Powell's framing of inflation and employment as competing goals, arguing that strong productivity-led growth "is not something we should fear but something we should embrace."  

It's too early to position for it, but investors should be tracking the task force outcomes closely through the second half of the year. 

Now I don’t think the Warsh Fed will be as opaque as the Greenspan era — when Fed watchers famously guessed policy direction from the size of Greenspan's briefcase. But it will likely be meaningfully less readable than the Powell Fed that markets have grown accustomed to. I think we should keep in mind that this uncertainty is now a feature, not a bug, of monetary policy. 

Next FOMC meeting: 28-29 July 2026