Warsh's New Forward Guidance: A Shift in Market Perception

The Federal Reserve's July statement is identical to its June statement apart from a single verb and a paragraph naming three dissenters. This suggests that the Committee is following a communications regime designed to say as little as possible.

This approach carries significant consequences, particularly for investors who focus on the vote tally in FOMC statements. The arithmetic of the vote has become the only variable left to discern from the text.

The 9-3 vote, which is a rare occurrence since September 2016, indicates that three officials dissented in favor of tighter policy. However, this dissenting vote was interpreted by the market as dovish rather than hawkish.

This misinterpretation can be attributed to the fact that a dissenting vote is essentially a losing proposition. The chair, Kevin Warsh, carried every governor and both reserve bank presidents not named in the dissent with no defection at the center.