Chairman Kevin Warsh: The New Sheriff in Town

Chairman Kevin Warsh is the new sheriff at the FOMC. He appears determined to get the markets behaving as markets and not as wards of the Fed. The policy statement was brief. It stuck to the facts. There was no forward guidance in either the statement or the press conference — a good start at severing the dependency. The market now must look at the same data as the Fed and make its own judgements and decisions about what to do. That’s how markets are supposed to work.

Chairman Warsh is setting up five task forces to study and recommend how the FOMC should communicate, how to use its balance sheet, improve its data sources, think about employment, and build its inflation framework. Those are all worthy endeavors, but he said this won’t be finished until this fall or year-end. In the meantime, decision must be made and these task forces should not become a reason for postponing decisions. This would be as detrimental to the markets and economy as too much forward guidance.

The Chairman is on the right path, and we wish him and the FOMC every success.