Fed Chair Kevin Warsh has scrapped forward-looking guidance from FOMC statements and wants to shrink the central bank's balance sheet, moves that have already pushed long-term Treasury yields to multi-year highs. He also wants to change how the Fed measures inflation, favoring a trimmed mean gauge over the core rate. The shift has left economists and Wall Street with less clarity on what the central bank will do next.
Kevin Warsh became the 17th Fed chair since the central bank's 1913 founding when he succeeded Jerome Powell on May 22, and he has moved fast to remake how the Federal Open Market Committee operates.
Forward guidance disappears from Fed statements
During his April confirmation hearing, Warsh outlined a list of reforms, and one is already in place: dropping forward-looking guidance from FOMC statements. For more than two decades, the Fed chair's statement typically signaled which way rates were likely to move next. Beginning with the June 2026 meeting, Warsh instead delivered a just-the-facts statement with no such signal.
That change has rattled the bond market. The 30-year Treasury yield recently hit a 19-year high, while the 10-year yield is nearing its highest point since the financial crisis. With inflation still above the FOMC's 2% target, bond traders have sold Treasuries, pushing yields and borrowing costs higher as they front-run the Fed's next move.
A push to shrink the balance sheet
Warsh also wants the Fed to become a passive market participant by paring down its balance sheet. The Fed's assets ballooned tenfold to nearly $9 trillion between August 2008 and April 2022, before quantitative tightening cut them to about $6.5 trillion by December 2025. Since then, the balance sheet has swelled back to $6.75 trillion as of Aug. 5, 2026. Selling off trillions in long-term Treasuries would push yields and borrowing costs higher, functioning much like a rate hike without the FOMC touching its target rate.
Rethinking how the Fed defines inflation
Warsh has also proposed changing how the Fed thinks about inflation itself. Citing the approach of former chairs Paul Volcker and Alan Greenspan, Warsh said: "price stability should be a change in prices such that no one's talking about it."
He has also criticized reliance on core inflation measures and instead favors the trimmed mean inflation rate, which discards the largest outlying price changes each month. With inflation running above the FOMC's 2% target for 65 straight months, the lack of a clear replacement gauge has made the central bank's next move harder to forecast, and that unpredictability is exactly what markets dislike most.
Source: The Motley Fool
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