Wealth Insights

Economy Commentary

The Economy

There’s A New Sheriff Fed Chair In Town . . .

July 2026

Well, that didn’t take long. Ahead of the June FOMC meeting, it was generally expected that new Fed Chair Kevin Warsh would put his stamp on the Committee. What was unexpected, however, was the speed with which he did so and the breadth of the changes he would, and would like to, make, both in how the FOMC conducts monetary policy and in how they communicate with the markets. Given that central banks are, rightly or wrongly, generally perceived to be slow to act and even slower to change, Mr. Warsh’s first meeting came as quite a jolt to many analysts and market participants. That, of course, is not necessarily a bad thing.

The most immediate indication that things were different was the Committee’s post-meeting policy statement, which was substantially shorter than those issued over the past several years. One factor contributing to the brevity of the post-meeting policy statement is that it offered no forward guidance, save perhaps for the final sentence, which read “The Committee will deliver price stability.” Recall that ahead of the meeting it was widely expected that the Committee would strike the implicit easing bias from the forward guidance offered to the markets, but we’re not sure anyone was expecting they would dispense with forward guidance altogether. Then again, in light of Mr. Warsh having in the past frequently questioned the value of forward guidance, perhaps doing away with it should not have been all that surprising.

The June FOMC meeting brought the release of an updated Summary of Economic Projections (SEP), which includes members’ forecasts of real GDP growth, headline and core inflation, and the unemployment rate, as well as the “dot plot,” which shows the path of the Fed funds rate each Committee member sees as being appropriate with their outlook for growth and inflation. One question ahead of the June meeting was whether Chair Warsh would contribute to the SEP, given his well-known disdain for the SEP in general and the dot plot in particular. A quick count of the updated dot plot showed only eighteen dots, meaning that one FOMC member did not submit projections, and there seemed little question that Chair Warsh was the FOMC member in question. As for those who did submit projections, the updated dot plot took a surprisingly hawkish turn from the March edition, with nine of the eighteen Committee members indicating they felt at least one twenty-five basis point hike in the funds rate by year-end 2026 to be consistent with their outlook for growth and inflation, with six members indicating multiple funds rate hikes would be appropriate by year-end.

For market participants busily trying to process these changes, the thirty minutes between the release of the post-meeting statement and updated SEP and the start of Chair Warsh’s post-meeting press conference must have seemed more like three minutes, and things didn’t exactly slow down once the press conference started. Perhaps the least surprising element of the press conference was Mr. Warsh acknowledging that he indeed was the Committee member who did not contribute to the SEP. Mr. Warsh then announced what will amount to a comprehensive review of the conduct of monetary policy to be conducted by task forces focusing on five areas: 1) Fed communications; 2) the Fed’s balance sheet; 3) the Fed’s use and reliance on existing sources of economic data; 4) productivity and jobs in an era of transformation (as Mr. Warsh put it); and 5) the Fed’s inflation frameworks, or, the drivers of inflation and the Fed’s options for achieving price stability in a changing economy. Each task force, consisting of members from within and outside of the Fed, will be charged with examining current practices, asking “hard questions,” considering alternative approaches, and ultimately proposing steps for FOMC members to consider. All of this coming just several minutes into the press conference had many analysts, market participants, and likely more than a few of the gathered reporters asking, “wait, what just happened here?”

As noted above, Mr. Warsh did not wait for the task force on Fed communications before doing away with forward guidance. We don’t necessarily disagree with Mr. Warsh in questioning the value of forward guidance. After all, a seemingly endless stream of public comments by FOMC members may elicit market reactions but provides little clarity around the path of the Fed funds rate. Many were quick to object to the elimination of forward guidance on the grounds that it would trigger greater volatility in the financial markets. That argument, however, doesn’t carry much weight in an environment in which each and every economic data release is seemingly evaluated in terms of what it means for the FOMC on the basis of seemingly nonstop forward guidance, as opposed to what it means for economic growth, inflation, and corporate profits. Given the twists and turns that are inherent in much of the economic data, this approach can be, and often is, a source of considerable market volatility.

Mr. Warsh offered a more forceful defense of doing away with forward guidance, noting that “financial markets perform best when they react to incoming data” but work far less efficiently when the reactions to the data are couched in terms of what it might mean for the Fed. He went on to say that changes in asset prices “are probably the most important source of information to guide central bankers.” The signals being sent by changes in asset prices, however, are distorted “when all the financial markets are doing is reflecting back what we’ve said.”

To us, this was the most important and meaningful part of Mr. Warsh’s press conference, and anyone who has ever been confused by bad (good) economic data being treated as good (bad) news by the markets would probably agree. Though we do not at all disagree with Mr. Warsh’s premise, it does raise a serious concern. Specifically, much of what is now considered the “top tier” economic data is plagued by measurement/collection issues, seasonal adjustment noise, and reporting lags. After all, if the economic data releases are more noise than signal, then changes in asset prices based upon these releases are also more noise than signal, making them far less useful signals to market participants and central bankers alike.

A few recent examples illustrate our concerns. For instance, the Bureau of Economic Analysis (BEA) recently released their third estimate of Q1 GDP, showing real GDP grew at an annual rate of 2.1 percent in Q1, better than the second estimate of 1.6 percent and not too far from the initial estimate of 2.0 percent growth. The details of the revision, however, are not so favorable, as the upward revision to real GDP growth largely reflects a smaller trade deficit and a smaller drawdown in business inventories than previously estimated. At the same time, growth in real consumer spending was revised down to an annual rate of just 0.5 percent from the second estimate of 1.4 percent on slower growth in services spending. That revision, however, was concentrated in two categories – net foreign travel and financial services – and is not indicative of underlying trends in consumer spending. Moreover, the cadence of the GDP data is such that the BEA’s third estimate of real GDP growth in any given quarter comes roughly three months after the end of the quarter, the point being that backward looking data is of little value to forward looking market participants and central bankers.

The past two monthly employment reports are prime illustrations of our concerns, as both the May and June employment reports are far more noise than signal (we discussed the May report in last month’s edition). Total nonfarm payrolls are reported to have risen by 57,000 jobs in June, far below the consensus forecast, while prior estimates of job growth in April and May were revised down by a net 74,000 jobs. Estimates of changes in payrolls in leisure and hospitality services have been riddled by seasonal adjustment issues over the past several months, which have played a key role in the sharp swings in headline job growth on a seasonally adjusted basis. Additionally, the initial collection rate for the June establishment survey was notably low – the lowest June rate since 1992 – which right off the bat diminishes the reliability of the initial estimates of nonfarm employment, hours, and earnings in June.

At the same time, the household survey data show the unemployment rate falling to 4.2 percent in June, but this reflects what is reported to be a sixty-basis point decline in the labor force participation rate amongst the 25-to-54 year-old age cohort, i.e., the “prime working age population.” The not seasonally adjusted data show that the number of prime age adults in the labor force fell by over 1.1 million persons in June which, aside from April 2020, is easily the largest monthly decline on record in data that go back to 1948.

To be sure, the issues with the past two monthly employment reports are clear and obvious, yet each report has elicited strong market reactions, though to our earlier point these reactions have mostly been couched in terms of what each report might mean for the path of the Fed funds rate. It’s almost as though market participants (and more than a few analysts) have become conditioned to interpret each and every economic data release in these terms. Whether that is due to excessive forward guidance from the FOMC cannot be determined, but in the absence of more timely and more reliable economic data, it’s a moot point. Either way, Mr. Warsh seems intent on breaking market participants of this habit by eliminating forward guidance. At the same time, though, Mr. Warsh’s task force on sources and uses of economic data clearly has its work cut out for it.

Sources: Bureau of Economic Analysis; Bureau of Labor Statistics; U.S. Census Bureau

As of July 10, 2026