Wall Street hadn’t heard a peep out of Federal Reserve Chairman Kevin Warsh for a month, until he walked onstage for his keynote speech at Jackson Hole today.
Warsh’s speech at the Fed’s annual gathering came with added scrutiny this year: Not only was it Warsh’s first as chairman, but he has also caused analysts some discomfort with his pullback from giving now-familiar forward guidance (in which the central bank indicated the general direction of travel for the base interest rate).
On forward guidance, Warsh stuck to his guns, saying: “You might know about my longtime discomfort with early pronouncements of future policy decisions … Forward guidance as a regular practice was adopted by my colleagues—and me—during the Global Financial Crisis. It was essential at the time, and we introduced it with much fanfare.
“But as with other legacies of crises past, I believe the practice has outstayed its welcome. In normal times, the role of forward guidance should be limited and circumscribed; otherwise, it risks creating ambiguity in the name of clarity. Oversharing policy deliberations and overcommitting to future decisions can lead markets, businesses, and households astray, and I believe when policymakers make quasi-commitments on interest rates throughout the cycle, we inhibit our own freedom to make the right calls when it’s time to decide.”
