Overview
- Following last week’s FOMC meeting the Fed left the target federal funds rate at 3.50%–3.75% and recorded three dissents from regional presidents who wanted a 25 basis-point increase.
- Chairman Kevin Warsh has shortened post-meeting statements and launched a task force to redesign Fed communications, signaling a move away from the routine forward guidance used under his predecessor.
- Investors responded with greater market volatility as equities fell and the dollar weakened after many said Warsh’s press conference left the Fed’s near-term intentions unclear.
- Economists are divided: some, including Apollo economist Torsten Sløk, say dropping forward guidance improves flexibility and market price signals, while others warn it risks returning uncertainty unless the Fed provides clearer framework guidance.
- The shift could make borrowing costs less predictable for households and businesses and heightens the importance of the task force’s recommendations for how the Fed will explain the steps it plans to use to reach its 2 percent inflation goal.