James Bullard, a former president of the St. Louis Fed, compared Kevin Warsh's leadership at the Federal Reserve to that of former Chair Alan Greenspan.
Federal Reserve Chairman Kevin Warsh wants to move away from forward guidance, and it might spark volatility in the market, says James Bullard, a former president of the St. Louis Fed, ahead of the minutes from the June meeting, due later today.
The new head of the U.S. central bank has said he does not intend to make forecasts in the summary of economic projections and has argued that financial markets have become too reliant on these outlooks instead of forming their own conclusions based on economic data.
Former Fed Chairs Jerome Powell and Janet Yellen both championed transparency; under them, there were a lot of well-documented moves, Bullard, who served as president of the bank for 15 years from 2008, said in an episode of "The Outthinking Investor" podcast with host Daleep Singh on Tuesday. "And maybe that's not always exactly the best policy."
"And so if Kevin wants to go more in the direction of 'Hey, the latest data have come in pretty hot and we're just gonna move right now, even though we didn't really prepare markets as much as the previous chairs would have,' maybe that's what's in store here," Bullard said, adding, "But it would be a more volatile outcome for traders in fixed income, for sure, and across the board."
The minutes of the Federal Open Market Committee's most recent two-day meeting in June will be published on Wednesday at 2 p.m. Eastern. Experts expect details of future potential interest-rate hikes to be kept to a minimum, owing to Warsh's preference for refraining from issuing guidance.
"I think the art for Kevin Warsh is to get the right amount of communication so that you keep markets in sync with what the committee is thinking, but you don't overcommit and feel like you have to overdeliver even when the data hasn't come in," Bullard said.
Bullard compared Warsh's planned shift within the bank to that of the Federal Reserve under Alan Greenspan, who served as chair from 1987 to 2006 and died last month. He became known for keeping his statements intentionally ambiguous while at the helm of the bank, and has been referred to by Warsh as a source of inspiration.
"I sometimes would cite Greenspan as being a little quicker to move and a little more impulsive and maybe more willing to take a surprise move," Bullard said.
(END) Dow Jones Newswires
