Federal Reserve Chairman Kevin Warsh has set an ambitious goal of transforming how the U.S. central bank assesses the economy by shifting towards real-time data and reducing its reliance on traditional government statistics, as per a report by Reuters.
Speaking at a monetary policy forum in Sintra, Portugal, Warsh said he wants the Federal Reserve within the next nine to 12 months to begin using new technologies and alternative data sources that provide a more immediate picture of economic activity. According to Reuters, he argued that existing government surveys often suffer from measurement issues and fail to capture current economic conditions quickly enough.
The Fed already relies on a broad mix of government statistics, private-sector information and internally developed data to guide interest-rate decisions aimed at supporting employment and maintaining price stability. However, Warsh has repeatedly criticized the central bank's dependence on official data, saying delayed or inaccurate information contributed to policy mistakes that allowed inflation to remain above the Fed's 2% target for more than five years.
While making the case for better real-time information, Warsh stopped short of drawing conclusions about the latest economic indicators or signaling any shift in monetary policy. Other Fed officials have long argued that looking at broader trends rather than individual data releases helps reduce the risk of policy errors caused by data revisions. Policymakers also supplement official statistics with information gathered from businesses and community organizations across the country through the Fed's Beige Book.
As part of his reform agenda, Warsh said he expects to announce members of five newly created task forces next week. One of the groups will focus specifically on identifying new methods of collecting and analyzing economic data, while the others will examine Fed communications, the central bank's balance sheet, productivity and employment, and the inflation framework.
Warsh also indicated that the advisory panels would include experts from outside the United States. According to Reuters, the groups will comprise former central bankers, academics and international specialists, reflecting his view that outside perspectives can help identify institutional shortcomings. Bloomberg separately reported that former Bank of England Governor Mervyn King is expected to lead one of the panels.
The Fed chief said the recommendations from these task forces are intended to provide independent advice rather than predetermined conclusions. Any significant policy or operational changes, however, would require support from the broader Federal Reserve leadership.
Warsh's comments come as the U.S. Bureau of Labor Statistics prepares for new leadership after President Donald Trump replaced its previous commissioner following major downward revisions to U.S. employment data. Reuters reported that Trump's nominee, Brett Matsumoto, has rejected claims that the data was manipulated but acknowledged that the collection process needs improvement, with economists pointing to declining survey response rates as a key challenge.
The Bureau of Economic Analysis has also announced methodological changes to parts of its inflation data, which are widely expected to result in downward revisions later this year.
Despite his criticism of official statistics, Warsh stressed that the Federal Reserve remains firmly committed to restoring price stability. He said inflation expectations and inflation risks have eased in recent weeks and reiterated that the central bank remains committed to achieving its 2% inflation target, according to Reuters.
Warsh, who became Fed chairman in May after campaigning on promises to overhaul the institution's operations and decision-making process, has consistently avoided providing forward guidance on interest rates while pushing for broader reforms to the central bank's policymaking framework.
