How Kevin Warsh has set out to remake the Fed
Federal Reserve Governor Kevin Warsh speaks to reporters at his first news conference since taking over as head of the central bank on June 17, 2026, in Washington, DC.
Chip Somodevilla | Getty Images
The first major changes announced by Federal Reserve Chairman Kevin Warsh mark a quiet revolution in which task forces are being formed to rethink almost everything done to set policy and the approach used to get there.
After the first meeting Wednesday, Warsh outlined the plan, a wide-ranging, ambitious effort that includes five task forces that will draw on resources and experts inside and outside the Fed.
The reviews amount to a comprehensive review of all areas that define modern monetary policy. No president in recent history has initiated a project worthy of this claim.
Their job will be to examine communications, the data the Fed uses to measure the economy, its view on inflation and its causes, the impact of technologies like artificial intelligence and the size and composition of the Fed’s $6.7 trillion balance sheet and the potential path to cutting assets.
Task forces will “start with first principles, ask tough questions, examine current practices, evaluate alternatives, and ultimately recommend next steps for policymakers to consider,” Warsh said.
“Each task force will serve a goal shared by everyone in the system, shared by everyone around the table where I have been sitting for the past few days: a Federal Reserve that is clear-eyed about its mission, fit for purpose, and focused on the future,” he added.
Warsh was emphatic and deliberate in announcing the task forces.
But the harsh rhetoric he used to condemn the central bank last year has now disappeared.
Last July, in an interview with CNBC while campaigning for the post, Warsh called for “regime change” at the Fed and cited the “credibility deficit” caused by “incumbents” at the agency. Instead, there were comments about how he was “incredibly impressed” by what he saw in his first weeks on the job and how the meeting “exemplifies the best of the Fed’s traditions.”
What once seemed like a potentially rancorous atmosphere within the organization quickly turns into a collegial one as Warsh begins to fundamentally rethink the way he does business.
“I think what we’re seeing is a velvet-gloved regime change,” said Scott Clemons, chief investment strategist at Brown Brothers Harriman. The task forces will “review and perhaps revise basically all operating aspects of the Fed’s practice, from communications to data sources, from the ways they approach the balance sheet to the inflation framework. There’s a lot of potential regime change here.”
Warsh’s decision to take a positive view came as little surprise to Fed veterans; Many of them spoke in favor of the direction taken by the new president.
“Everyone at the Fed knows that the way change works is because of what he does, which is create task forces to build consensus,” former central bank deputy governor Roger Ferguson told CNBC. he said. “There are some things that one can get rid of that I think would be helpful, and there are other things that maybe one should be careful about.”
getting started
Former Cleveland Fed President Loretta Mester served on a communications subcommittee during her tenure from 2014 to 2024, part of her nearly 40-year career at the central bank. He is familiar with the Fed’s previous efforts to enact a change that was perhaps not as prescriptive as the approach taken by Warsh.
“Everything he’s looking at is stuff the Fed is looking at. But he’s organizing the work and I think he’s putting things on a faster time frame than normal for some of the projects that the Fed has undertaken before,” Mester said. “So I think it’s a good thing to work on this. Of course, we’ll have to see what the recommendations are and what changes they want to make.”
One of the most visible areas where Warsh has changed is communication.
Mester said there is no problem with the Federal Open Market Committee returning to the previous format. But this week’s statement also deleted what was called advanced guidance language; That’s something officials may want to address with more information about the Fed’s “response function,” or outlining how and why the Fed will adjust its position based on economic factors.
“I like that they’ve gotten rid of a lot of what we call boilerplate language that no longer serves any purpose,” he said. Mester added that the Fed has had a “Hotel California problem” for a long time.
“Once a phrase or sentence got in there, it was very difficult to get it out. So it was a necessary kind of catharsis,” he said.
Other areas likely to be explored would be the elimination of “dot plot” rate forecasts by individual FOMC participants, as well as a possible adjustment to the press conference chairs that have been held for the past 15 years.
Other areas of reform
The task forces will target a broad swath of Fed operations.
On the balance sheet, Warsh has long objected to the Fed’s outsized position in bond markets, which ballooned during and after the 2008 financial crisis and during the Covid pandemic in 2020.
There will also be a study of how the Fed measures inflation after it has been above its target for five years. Incorrect “interim” call in 2021 and 2022. Artificial intelligence and its effects will also be in focus, as will a comprehensive look at the metrics the Fed uses to measure the economy and an expected look at greater use of data and analytics for guidance.
BlackRock fixed income chief Rick Rieder, himself a finalist for the nomination Warsh won, called the president’s approach “a new era in monetary policy in the United States.”
“Building a sense of confidence in achieving monetary policy goals will only be enhanced by compelling coverage of complex issues that could have a profound impact on the economy and the Fed’s goals going forward,” Rieder said in his post-meeting note. he said. “So this time it’s different; we’re hearing a different philosophy, different tools, and potentially a very different understanding of policy.”
Mester, the former Cleveland Fed president, added that an important way to make it all work is to provide clear lines about what will drive monetary policy in the future.
“It doesn’t have to be numerical, it doesn’t have to be too prescriptive, but to understand what they’re looking at, what kinds of things are going to persuade them one way or another,” he said. “I think that’s something we want our central bankers to be able to express to us. Otherwise it’s kind of saying ‘trust me,’ and ‘trust me’ is not good communication.”
