Kevin Warsh’s Press Conference Collides Into 30 Years of Michael Woodford

Mike Konczal

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Kevin Warsh’s Press Conference Collides Into 30 Years of Michael Woodford<br>The new Fed chair argued that the Fed should stop reflecting markets back at themselves. Forgotten debates show how this leads to confusing, indeterminate results.

Mike Konczal<br>Jun 23, 2026

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We knew that Kevin Warsh was opposed to forward guidance of interest rates. The question going into his first FOMC meeting and presser is how opposed he was to central bank communication in general. Where was he on the Summary of Economic Projections, or describing current market conditions, or pointing to a policy rule and reaction function?

The efficiency of the ketchup market is the best established fact in empirical economics.<br>Apparently he is opposed to all those as well. Trimming down a bloated FOMC policy statement is good.1 But it’s not just that he didn’t submit his estimate of appropriate future policy rates over the next few years (the “dot plot”) last week, he apparently didn’t submit any values for the Summary of Economic Projections, which has existed since 2007. During the press conference he conveyed very little information on what the Fed is thinking at all. When asked explicitly about his “reaction function” he deflected. See Nick Timiraos’s WSJ coverage on how confused it left everyone.<br>Maybe that’s fine if this was a boring meeting, but with inflation increasing, financial markets really wanted to know if hikes were more likely to be on the table. I’m trying to imagine the counterfactual where there was no dot plot and all the other information was also missing, with traders suddenly having to price in a ton of confusion over multiple possible Fed reactions. Rates would be basically indeterminate (remember that word, we’ll come back to it in a minute) in this scenario.<br>Subscribe here to keep up with the latest economic debates.

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Modern macroeconomics is about expectations. What’s the theory of expectations here? When asked about rolling back communication, Warsh gave a very specific answer (transcript):<br>EDWARD LAWRENCE. Thanks. Welcome, Mr. Chairman. Edward Lawrence with Fox Business. So, if you don’t give a lot of ongoing forward guidance, won’t the market have more volatility, and shouldn’t Americans have more access into what you’re thinking going forward?<br>CHAIRMAN WARSH. So I think financial markets perform best when they react to incoming data. I think the financial markets work less efficiently when they ask a question. How will the Federal Reserve react to that incoming information? The more that markets are paying attention to what’s happening in the real economy, deciding what’s good data and what’s less good data, the more financial markets can price what they believe is the most likely and what are the tail risks.<br>Financial market prices are probably the most important source of information to guide central bankers. But when all the financial markets are doing is reflecting back what we’ve said, then we’re taking the most important source of information and we’re being blind to it. I’d like us to create a system where those blinders come off, where markets are following data that they efficiently think is reliable. And they’ll be watching data, we’ll be watching data. They’ll come with better information through market prices to us, we can make more informed decisions.

Read that again. This is not what I was expecting, which was an argument that forward guidance locks the central bank into paths it fears it cannot change (which is what he said during his Senate testimony). That argument relates to the recent inflation wave and I think it is important to debate it. (A fan chart replacing the dots might be nice.) It also wasn’t that forward guidance should only be done at the zero lower bound, or that its effects are overstated by the models (McKay, Nakamura, Steinsson 2016), or any of the other many things economists have debated over the past decade.<br>This answer is pure “Ketchup Economics.” It’s a theory that derives strong answers from prices without any idea of what is informing those prices in the first place. The problem compounds when this argument ignores the complex interplay between market prices and central bank action.<br>The idea that the Federal Reserve can simply target private-sector inflation information that exists independently of the Fed’s own forecasts, and that more public central bank information can have negative effects, is not new to Warsh here. These two propositions were debated by many from the mid-1990s to the mid-2000s.<br>The Indeterminacy of Targeting Forecasts

Take Warsh at his word that market prices are “probably the most important source of information to guide central bankers,” then ask what happens if the Fed actually sets policy off that forecast. In the 1990s many proposed precisely this: that the Fed set interest rates based solely on private-market...