The Future of Forward Guidance Under Fed Chair Warsh

Summary

Torsten Slok discusses how Fed communication could change under Chair Kevin Warsh, including potential removal of forward guidance and dot plot changes, and the hawkish implications for policy given strong inflation and labor market.

• Slok expects possible rewrite of FOMC statement and less forward guidance under Warsh.
• Removing forward guidance and shrinking balance sheet would implicitly tighten policy.
• The dot plot may cause confusion despite anchoring expectations; Warsh could skip submitting a rate projection.
• Strong U.S. economy with inflation near 3% and robust consumer demand argues for hawkish stance.
• Iran deal and lower energy prices help but other inflation pressures remain.
• Fed chair needs consensus from 12 voting FOMC members; market will still focus heavily on the chair.