What is clear from the first Warsh press conference is that he will not provide forward guidance on the Fed’s actions. Chairman Warsh is not going to tell the market anything about what the Fed may be doing in the immediate future.
Governor Waller, on the other hand, provided a spirited defense of forward guidance that serves a specific purpose, albeit flexible to meet policy needs. Perhaps forward guidance was useful when we were close to the zero bound, and the Fed wanted markets to know that rates would be lower for longer. It may not be appropriate today, given that we are in a different regime.
Nevertheless, forward guidance is supposed to signal policy to the makrets os they will bend to the desires of the Fed. If the Fed is unsure which direction to take, any forward guidance may be wrong-footed.
In any case, less forward guidance should lead to more bond market volatility and more discussion on what the Fed is thinking. Fed watch is back in vogue.
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