The Fed Chair Won't Tell You Anything, So Everyone Else Is

Five Hours of Testimony, Zero Useful Signals

Here's the thing about congressional testimony: it's supposed to produce information. A senior government official sits before elected representatives, gets grilled for hours, and the public learns something about how power is being exercised. That is the basic civic transaction.

Warsh testified across two days last week, racking up more than five hours in front of Congress, according to Axios. And yet, per Axios's reporting, it was comments from several of his colleagues that gave markets and observers the clearest picture of what the Fed is actually likely to do at next week's policy meeting. The chairman of the Federal Reserve showed up, talked for five hours, and the most informative thing that came out of those sessions was... stuff other people said afterward.

The Silence Is Deliberate, Not Incompetent

To be fair to Warsh, this isn't a case of a man who doesn't know what he thinks. Axios reports that he is actively and deliberately trying to get the Fed out of the business of providing forward guidance to markets. That is a real philosophical position with real intellectual backing behind it. The argument goes roughly like this: when central banks pre-commit to future actions through their communications, they box themselves in, reduce their flexibility to respond to new information, and end up distorting markets in ways that create their own problems.

It is, as Axios notes, a strategy that preserves flexibility. There is a version of this that makes sense. Markets that have been trained for years to parse every syllable from Fed officials for trading signals have arguably become too dependent on that guidance. Jerome Powell spent years practically writing interest rate decisions on a whiteboard for Wall Street in advance. Warsh seems to think that was a problem worth fixing.

The question is whether the cure is worse than the disease.

Nature Abhors a Vacuum, and So Does Wall Street

When the Fed chair won't give guidance, the market doesn't shrug and wait patiently. It finds guidance somewhere else. Axios describes this as a central paradox of Warsh's communications strategy: because he has stepped back from signaling, markets are now filling the gap by obsessively tracking comments from other Fed officials, any Fed officials, to piece together what the institution is likely to do.

This is not a hypothetical problem. It is exactly what happened last week. Warsh sat in front of Congress for five-plus hours and said essentially nothing that moved market expectations. Then his colleagues talked, and that moved the needle. The chairman of the most powerful central bank in the world has effectively outsourced his communications function to a rotating cast of regional Fed presidents and board members, whether he intended to or not.

There is something genuinely absurd about a communications strategy that results in every Fed governor except the chairman becoming the relevant voice for what the Fed will do. It's like being the head of a band but refusing to play your instrument, so audiences just watch whoever is standing nearest to a microphone.

What Happens at Next Week's Meeting

The immediate practical stakes here involve next week's Fed policy meeting, which Axios reports is the context in which all this communication chaos is playing out. Markets are trying to figure out whether the Fed will move on interest rates, and they're doing it by scrutinizing everyone other than the one person you'd expect to be the authoritative source.

That is not a small thing. Interest rate decisions ripple through mortgage rates, business lending, employment, the cost of carrying government debt. The Fed's communications about what it intends to do are themselves a policy instrument. When those communications become a guessing game based on whoever happened to give a speech in Cleveland last Thursday, that introduces a kind of noise into the system that has real economic consequences for real people.