Warsh Takes Aim at Fed Communication Strategy in Bid to Revamp

Kevin Warsh, the new chair of the Federal Reserve, is looking to shake up the central bank's communication strategy. He believes that too much talking has created confusing noise and excessive transparency, which can breed complacency and moral hazard. According to Ben Bernanke, a former Fed chair, monetary policy is 98% talk and 2% action.

Warsh wants to move away from the approach of his predecessor, who favored more communication and guidance. Instead, he aims for a 'quieter Fed' that is more purposeful in its communications. This could be a significant change, as the Fed's communication strategy has evolved over the past 30 years towards greater transparency.

The major inflection point was the 2008 global financial crisis, which led to a huge shift in how the Fed operated. Bernanke's Fed introduced new tools and forward guidance to explain its actions to the public and keep investors calm. However, Warsh argues that too much communication can create uncertainty and market volatility.

Warsh has already faced criticism for his own communication style, with his second press conference after the July Fed meeting being widely panned. Willem Buiter, an economist and former Bank of England policymaker, warns that reducing predictions offered by monetary policymakers would enhance market uncertainty and lead to worse economic outcomes.