Summary

• Kevin Warsh’s first Federal Reserve meeting as chair mattered less for the rate decision than for what he revealed about how the Fed intends to operate.
• Under Warsh, the Fed wants more information from markets and outside experts and more flexibility to pivot as conditions evolve. It also wants external data to drive market expectations, not its own guidance.
• A less prescriptive Fed, therefore, arrives precisely when uncertainty surrounding the factors driving the inflation process itself is unusually high.
• The accelerated implementation of AI is further complicating matters, with skyrocketing prices for chips and memory capacity spilling into consumer prices.
• If equity wealth is indeed a factor supporting above-target inflation (alongside supply shocks), then equities may become part of the transmission mechanism to cool inflation as well.

Kevin Warsh’s first Federal Reserve meeting as chair mattered less for the rate decision than for what he revealed about how the Fed intends to operate. Warsh signaled a shift toward less guidance and more flexibility: a simplified policy