What Fed Chair Kevin Warsh’s Jackson Hole Debut Means for Nervous Markets

**Telis Demos** (0:02)
Hi, Miriam.

**Miriam Gottfried** (0:03)
Hi, Telis.

**Telis Demos** (0:03)
So today's show brings us to Wyoming.

**Miriam Gottfried** (0:06)
Unfortunately, not actually to Wyoming because we are still here in our studio in midtown Manhattan.

**Telis Demos** (0:13)
But spiritually, we are in Wyoming, and that's because this upcoming week is the Jackson Hole Economic Symposium, which is, if you don't know it, it's basically Lollapalooza for the Federal Reserve, Fed officials, economists, academics.
And it's Kevin Warsh's first as Chairman of the Federal Reserve. And I don't know if it's an overstatement to say that this might be one of the most looked-ahead-to speeches at the Fed in many years.

**Miriam Gottfried** (0:40)
Yeah. I mean, usually the conversation around the Fed, the debate is, will the Fed raise interest rates or will the Fed cut interest rates or will the Fed hold steady? But this time, there's an entirely different conversation that's going on, which is that Kevin Warsh wants to change the way the Fed communicates, specifically by doing away with forward guidance, which is basically telling the market what the Fed is thinking at any given time and thinking about the different things that might change the Fed's thinking and communicating that to the market.

**Telis Demos** (1:13)
Yeah. And so far, Wall Street has not really seemed to love this approach. The bond market's been pretty wild recently.

**Miriam Gottfried** (1:20)
Yeah. They don't like the fact that this information is potentially being taken away from them.

**Telis Demos** (1:24)
Well, and maybe Wall Street's just kind of throwing a tantrum because things are going differently. But I think what we want to talk about is that there's a lot more at stake here than just what's the next interest rate move or is Wall Street happy or not. How the Fed communicates is something that has been studied and debated for decades. It's inextricably linked to perceptions of the Federal Reserve and its credibility for fighting inflation and keeping the economy at full employment, its so-called dual mandate. It's also just a big part of the relationship between the government and the economy. So to understand all that and to talk about the context behind it and to talk about what we might hear at Jackson Hole, we brought in some heavy hitters for this episode. We've got a couple of guests. The first who probably needs no introduction to our audience here at The Wall Street Journal is Nick Timiraos. He is the WSJ's chief economic correspondent and he covers the Fed. Nick, welcome to the show.

**Nick Timiraos** (2:19)
Thanks for having me.

**Miriam Gottfried** (2:20)
And then we also have a very special guest, which is Professor Frederic Mishkin. He is one of the foremost scholars of monetary policy. He's a professor of banking and financial institutions at the Columbia University Graduate School of Business. And if you're an econ major, you probably read a textbook that he wrote.
Professor Mishkin, welcome to the show.

**Frederic Mishkin** (2:41)
It's my pleasure to be here.

**Telis Demos** (2:42)
Professor Mishkin was at the Federal Reserve from 2006 to 2008 And you also served with a fellow by the name of Kevin Warsh during his first stint at the Federal Reserve.
So, let's first talk about what's been going on. So Nick, you've had a front row seat to the Warsh and Powell press conferences, literally and figuratively. Tell us what's been different about how the Fed has been communicating and how Kevin Warsh personally communicates thus far early in his term.

**Nick Timiraos** (3:17)
Well Telis, every chair is different and the room sort of adapts to them. So I started covering the Fed when Janet Yellen was chair and she gave these long, detailed, careful answers, multi-part clauses, nobody asked a follow-up question because you were sort of getting overwhelmed with nuance. Powell was the opposite, breezy, plain, short answers. Everybody started asking follow-up questions.
He got burned a couple of times with off-the-cuff answers so he became a little bit more rehearsed and practiced. And Warsh as we've seen is different again. He's not giving long answers.
He's evasive by design. I don't mean that pejoratively. And he doesn't think it's the Fed's job, as you said, to walk them through their next move. But I think there's a lot writing on this speech in Jackson Hole because the general consensus was that this sort of tight-lipped, less is more strategy at the July press conference did not pay off. And the forward guidance in its strongest form is making promises or commitments about what you're going to do or not do with interest rates. We won't raise interest rates until X, Y, or Z. And there's a lot of agreement, I think Professor Mishkin would agree, that you shouldn't be doing that anymore. You don't need to do that when you don't have rates that stuck at zero and you want to provide more stimulus. And I think if that's all that Warsh was pulling back on, he'd have a lot of companies saying, good, don't do this anymore. But I think that's not the whole of what he's doing. He is declining to talk not just about where rates are headed, but also about how he sees the economy, the tradeoffs, why they held rates steady in July, even though there were three people who wanted to raise them. And so explaining how you read the economy isn't the same thing as promising what you'll do about it. And by collapsing those two things into one, we're seeing some pretty unusual reactions, not just from commentators, but from so-called trigger pullers in the markets who are maybe more unsettled or confused, not by what he is saying, but by what he is not saying.