Warsh Targets Fed Communication Strategy, Aims for Quieter Approach

Kevin Warsh has been tasked with revamping the Federal Reserve's communication strategy. According to former Fed Chairman Ben Bernanke, monetary policy is 98% talk and 2% action. This approach reflects the importance of central-bank messaging in achieving the Fed's dual mandate: maximum employment and stable prices.

Warsh has set up a task force to overhaul Fed operations, including communication. He believes that the current strategy has swung too far towards transparency, with too many speeches and public comments from officials and too much 'spoon-feeding' of information to markets. In his keynote address at the Kansas City Fed's annual symposium in Jackson Hole, Wyoming, Warsh said a quieter Fed, more purposeful in its communications, is better able to meet its objectives.

Under Bernanke's leadership during the 2008 global financial crisis (GFC), the Fed introduced new tools and forward guidance. This included the Summary of Economic Projections (SEP) in 2007, FOMC press conferences in 2011, and the 'dot plot' of officials' anonymized forecasts in 2012.

However, others argue that too much communication can create confusing noise and breed complacency. Excessive transparency risks being interpreted as predictability, leading to moral hazard where investors make reckless bets knowing central banks will come to their rescue.