Federal Reserve Chairman Kevin Warsh has proposed reducing the number of rate-setting meetings next year, a move that could introduce more uncertainty into financial markets. While the Fed will still hold eight Federal Open Market Committee (FOMC) meetings, only seven will include policy decisions. The eighth will focus on broader monetary policy strategy without any interest-rate decision. By 2028, the number of policy meetings will drop to six, with two reserved for strategy discussions.
The shift has raised questions about how the Fed will manage economic developments between scheduled meetings. Gregory Daco, chief economist at EY-Parthenon, questioned whether the change implies refusing to adjust policy even when economic conditions warrant it. Warsh emphasized the need for strategic deliberations, stating that 'getting policy right involves assessing near-term developments at timely, regular and information-rich intervals.'
Reducing scheduled decisions could lead to more unscheduled rate-setting meetings, increasing market volatility. Historically, emergency rate changes have been rare but have often coincided with significant economic disruptions, such as the Covid-19 pandemic and the Sept. 11 attacks. The Fed has the authority to call unscheduled meetings, but such moves could disrupt the predictability that markets have grown accustomed to over the past few decades.
The current system has provided investors with a regular schedule for anticipating policy decisions, with the S&P 500 gaining an average of 0.23% on Fed rate decision days since 1999. The proposed changes could eliminate some of these trading opportunities and introduce more unpredictability, potentially leading to market whiplash.