New Fed Chair Kevin Warsh Just Broke 14 Years of Precedent With A Controversial Move That Signals the Beginning of A New Regime

In his first official meeting, new Federal Reserve Chair Kevin Warsh didn’t waste any time in implementing what many speculate is the beginning of a regime change at the quasi-private agency.

The Fed left interest rates unchanged within the 3.50%-3.75% range. But, among several big changes, Warsh confirmed that he abstained from participating in the rate-setting Federal Open Market Committee’s (FOMC) Summary of Economic Projections (SEP), which includes the “dot plot.”

The “dot plot” shows where each of the 19 members of the FOMC believes the federal funds rate, the Fed’s benchmark overnight lending rate, will land at the end of each of the next three years and over the longer term.

The “dot plot,” which is anonymous, is released four times a year. This year, FOMC members are selecting their target federal funds rate for the end of 2026, 2027, 2028, and in the “longer run.”

Warsh chose not to submit his projections, breaking a 14-year precedent.

Why Warsh didn’t participate

Federal Reserve Chair Ben Bernanke introduced the “dot plot” in 2012 to increase the Fed’s transparency following the Great Recession, when people likely had less faith in the country’s financial system.

The “dot plot” is part of the Fed’s SEP, which provides other FOMC members’ economic forecasts.

It has become an important tool for investors, who use it to assess how the FOMC is thinking about interest rates. Many companies are impacted by interest rates, so investors can use the “dot plot” to better pick interest rate projections in their financial models.

Official White House Photo by Daniel Torok

During Warsh’s press conference following the conclusion of the Fed’s meeting on June 17, Warsh confirmed he did not provide any projections in the SEP. Warsh is not the first FOMC member to ever refrain from providing projections.

James Bullard, president of the Federal Reserve Bank of St. Louis between 2008 and 2023, regularly did not provide his “long run” “dot plot” projections.

And interestingly, in the “dot plot” just released, only 17 FOMC members provided projections for 2028, indicating that another FOMC member refrained from providing a projection for that year.

However, Warsh is the first board chair not to participate in the SEP at all.

Warsh has long been critical of the Fed’s involvement in financial markets and believes its forward-looking guidance is to blame for attracting excessive investor attention.

“So I think financial markets perform best when they react to incoming data,” Warsh said in response to a reporter’s question during his press conference. “I think financial markets work less efficiently when they ask the question, ‘How will the Federal Reserve react to that incoming information?’”

One of many changes to come

The SEP and “dot plot” omissions were not Warsh’s only big change. The FOMC also issued a much shorter policy statement than usual and removed its easing bias from the previous meeting’s statement, though that is more attributable to recent economic data trends and inflation concerns.

Warsh also announced that he has created five policy task forces to examine several important “areas that are central to the broad conduct of monetary policy.”

The areas include Fed communications, balance sheet policy, reliance on existing data sources, productivity and jobs in an era of transformation, and the Fed’s inflation framework.

This means Warsh and the FOMC will examine nearly every important aspect of how they conduct their business, including how much communication they have with the public, how they collect data, and, potentially, how they define inflation, among other aspects.

Given what just happened at Warsh’s first FOMC meeting, I expect him to look to move quickly. Investors should pay close attention to these task forces, as their findings could significantly impact the Fed’s trajectory and, therefore, the broader market.

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