Kevin Warsh has taken the helm of the Fed promising a "regime change." For his first meeting, he has already launched a major overhaul: communication.

Over the past few decades, the Fed has sought to be as transparent as possible to guide market expectations.

Every three months, the Fed updates its economic forecasts and its members publish their projections for the evolution of benchmark interest rates. Between meetings, these officials deploy across the media to explain their positions on all matters related to monetary policy.

Over the years, forward guidance has become a very powerful tool. The Fed provides a direction, and the market does the work.

"Forward guidance is not a business we should be in," Kevin Warsh contends. During his press conference last week, he promised to open a "new chapter" in how the central bank interacts with financial markets.

Blackout

The new Fed Chair wants the Fed to communicate significantly less, in order to regain room for maneuver and let the market react to economic data rather than to expectations of Fed moves.

And he did not wait to take action. The new Fed Chair was the only member of the FOMC who did not submit a projection for the evolution of rates for 2026. For Warsh, these projections tend to bind the Fed to a specific scenario and make it less reactive when the economic context changes.

During this press conference, Kevin Warsh also announced the launch of five working groups to review the institution's operations. One of them focuses on communication.

Kevin Warsh seems to want to return to the Greenspan era, a Fed Chair who declared in 1987: "if I seem unduly clear to you, you must have misunderstood what I said." During his swearing-in ceremony, Warsh indicated his desire to follow in those footsteps. Greenspan recently passed away at the age of 100.

In this drive to communicate less, Kevin Warsh might, for example, choose not to hold a press conference after every Fed meeting. "Press conferences can be a very useful way to communicate," he explained last Wednesday. "But when you hold one, you want to be sure you have something important to say."

Rallying the Committee

If Kevin Warsh wants to change communication, he will need to bring the other 18 members of the FOMC on board. He can decide not to submit his own rate projection, as he did last week. However, he needs a majority of members to remove the dot plot from the Fed's communication.

As a reminder, dot plots were introduced by Ben Bernanke in 2012. The idea was to signal to the market that the Fed would maintain rates at a floor level for several years.

Warsh also cannot force his colleagues to stop giving interviews or making speeches. On the contrary, if the Chair speaks less, other FOMC members will have more space to push their own positions.

And while Kevin Warsh has arguments, and perhaps supporters, in his desire to overhaul communication, a new framework must still be found. "I've never been a huge fan of the dot plot, but you can't beat something with nothing," Jerome Powell summarized in April.

More Volatility, Higher Rates

A quieter Fed, providing less indication on the trajectory of monetary policy, necessarily means a different market environment.

Markets will likely be more volatile, particularly in the sessions preceding and following Fed meetings. Indeed, we have become accustomed to a lack of surprises. Decisions rendered are almost always widely anticipated.

But if the Fed is more unpredictable, these decisions will have a greater impact on the markets.

Furthermore, uncertainty regarding the rate trajectory could translate into a premium on U.S. debt, and therefore higher rates.

Ultimately, this results in tighter financial conditions and thus a more effective framework for fighting inflation.