Warsh gives no July rate signal, pitches Fed policy reset
By By Jacqueline Policastro | Quincy News Correspondent
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Quincy News (Quincy News) — SINTRA, Portugal — Federal Reserve Chair Kevin Warsh gave investors no fresh signal Wednesday on whether the Federal Reserve could raise interest rates later this month, instead using his first major international appearance as chair to outline his vision for reshaping how the central bank makes policy. Warsh joined European Central Bank President Christine Lagarde, Bank of England Governor Andrew Bailey and Bank of Canada Governor Tiff Macklem on a panel at the European Central Bank’s Forum on Central Banking in Sintra, Portugal. The forum brought central bankers and economists together to discuss inflation, productivity, artificial intelligence and the future of monetary policy. For markets, the takeaway was what Warsh did not say. The Fed meets again July 28-29, but Warsh repeatedly declined to say whether officials could raise rates then, sticking to his new approach of avoiding forward guidance. “I said I’m not going to give forward guidance because we’re meeting in six weeks,” Warsh joked. “But I have an update for you. We’re meeting in four weeks.” When moderator Sara Eisen pressed again, Warsh laughed that she was trying to get him to break his own rule. “She’s going to fail,” he said. Treasury yields eased during Warsh’s remarks while stocks opened lower as investors also digested softer-than-expected private payrolls data. Warsh said officials would receive substantial new economic data before the July meeting and predicted a “good family fight” when policymakers gather behind closed doors. The restraint contrasted with his June 17 debut press conference, which investors broadly viewed as hawkish after the Fed held rates steady and Warsh emphasized the central bank’s commitment to restoring price stability. Warsh appeared noticeably more relaxed than during that appearance, joking with fellow central bankers and the moderator throughout the discussion while explaining the philosophy behind the Fed he hopes to build. “Reform does not stop at the water’s edge,” Warsh said, praising Lagarde’s comments on forward guidance and arguing that central bankers around the world are rethinking long-held assumptions about monetary policy. Warsh said the Fed has created five outside task forces to review its communications, economic models, data, monetary policy framework, and balance sheet policy. The outside experts serving on those groups could be announced as soon as next week, he said. “The most important thing we can do is get policy right,” Warsh said. He argued that outdated communications tools and economic models should not stand in the way of better policymaking, calling this “a rare moment” for central banks to return to first principles after years of relying on crisis-era frameworks born out of the 2008 financial crisis. Artificial intelligence emerged as another major theme. Warsh argued the AI boom is already driving heavy capital investment in the United States that could eventually reshape productivity, economic growth and the way the Fed interprets inflation. “We don’t view the economics of this as zero-sum,” he said. “We aren’t rooting for another country to fail. We’re rooting for economic growth to be broad-based.” Warsh dismissed fears that AI will simply eliminate jobs, arguing the economy remains in the “first or second inning” of the technology shift. “If you wanted me to sound like a pessimist and a downer on this, I’m afraid I’m not there,” he said. Warsh also defended the Fed’s independence, saying the central bank would remain focused on its congressional mandate rather than politics. On the balance sheet, Warsh reiterated his long-held preference for interest rates as the Fed’s primary policy tool. Any move to shrink the central bank’s holdings further, he said, would be deliberate, public and decided by the Federal Open Market Committee and the Board of Governors. “It took us about 18 years to find our way into this big balance sheet,” Warsh said. “It’ll take us more than 18 weeks to bring it down to size.” For investors looking for a July signal, Warsh offered little. For central bankers in Sintra, he offered the clearest outline yet of the Fed he wants to build.
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