Nick Timiraos, often dubbed the 'new Fed wire,' stated that Jerome Powell’s successor, Kevin Warsh—who has been in office for just two months—has ignited a real power struggle within the Federal Reserve by deploying a one-two punch: launching five external working groups to review the Fed’s existing policy framework while deliberately maintaining strategic silence on future policy direction. Governor Christopher Waller has openly criticized Warsh’s 'say-less' philosophy, deepening both market confusion and internal divisions. This week’s FOMC meeting will serve as the harshest stress test yet for this strategy—holding rates steady would signal dovishness, while an unexpected rate hike could spark panic. Warsh’s reform ambitions are now walking the narrowest of tightropes.
In a Monday article, Nick Timiraos—the new Fedwire journalist—focused on the policy moves of newly appointed Federal Reserve Chair Kevin Warsh during his first two months in office, noting that Warsh’s reform ambitions are triggering a real 'family civil war' within the Fed.
Timiraos noted that Warsh is simultaneously pushing forward comprehensive reviews of the Fed’s operations by five external expert working groups while deliberately remaining silent on the economic outlook and policy direction—a dual-pronged approach that has left his colleagues intrigued yet deeply uncertain.
From a broader perspective, Warsh faces a dual core challenge: on one hand, he must convince officials who have participated in policymaking over the past 63 months of above-target inflation to acknowledge flaws in their established mental frameworks; on the other, his 'speak less, observe more' style is generating new uncertainties both within the institution and in markets.
Complicating matters further, the Federal Reserve is set to hold its policy meeting this week, with an unusually unpredictable outcome—markets broadly expect rates to remain unchanged, yet renewed inflationary pressures have quietly revived the possibility of another rate hike. Warsh’s silence strategy is now undergoing its most direct stress test at this critical juncture.
The Five Working Groups: Vanguard of Reform or Rubber Stamps?
According to Nick Timiraos, Warsh’s first major move after taking office was announced at a dinner just before his inaugural FOMC meeting on June 15: he would establish five external expert working groups to review core aspects of the Fed’s operations, including its communication mechanisms, inflation framework, and asset holdings. The 15 group leads include Nobel laureates in economics, former central bank officials, and corporate executives—an impressive roster that even drew praise from many skeptics.
However, the dinner atmosphere wasn’t all applause. Fed Governor Christopher Waller immediately challenged Warsh, asking directly what the true purpose of these working groups was. His implication was sharp: 'Tell me who you’ve picked, and I’ll tell you what conclusions they’ll reach.'
The underlying message was clear: Warsh was merely using external authority to validate views he already held, packaging predetermined conclusions as 'independent findings.' James Bullard, former president of the St. Louis Fed, sided with Warsh, arguing that bringing in credible outsiders to drive organizational change was the right path—'He’s heading in the right direction.' This clash of perspectives reflects the true sentiment within the Fed toward this reform effort.
"Speak Less" Philosophy: Safeguarding Judgment or Sowing Confusion?
If the working groups represent the 'visible thread' of Warsh’s reform agenda, then his deliberate silence has been the most striking 'hidden thread' over these past two months.
Nick Timiraos noted that during a congressional hearing, Republican Senator John Kennedy of Louisiana pressed Waller on whether he would hold rates steady, hike, or cut them in the face of current inflation. Waller sidestepped all specific options and instead spoke about the value of working groups. This evasive style left both markets and colleagues perplexed.
Waller has his own rationale: once the Fed releases forecasts, officials tend to favor evidence supporting those projections while overlooking contradictory signals, creating cognitive bias. Remaining silent, he argues, allows markets to form their own judgments about the economy rather than echoing the Fed’s views. He told lawmakers that investors 'are already complaining that I’m not giving them the same information as before,' but his stance is clear: 'Go play ball—don’t stare at the Fed.' However, Michael Gapen, chief U.S. economist at Morgan Stanley, is unconvinced, calling this logic flawed: 'The assumption that markets will independently interpret data if the Fed refrains from commenting on it is far-fetched.'
Internal Rift: Waller’s Public Pushback
Waller’s silence strategy faced its first challenge at a dinner, but the real public friction emerged four weeks later. In a speech to economists in New York, Waller directly criticized the 'say-less' approach: 'In my many years as an economist, I have never encountered any theory suggesting that withholding what you’re thinking makes people’s lives better or markets function more smoothly.' The weight of these remarks was unmistakable—Waller himself was appointed by Trump and had been one of the final contenders for the chairmanship. His public comments signaled that internal divisions could no longer be concealed.
William English, former director of the Federal Reserve’s Division of Monetary Affairs, raised more practical concerns: a chair who avoids discussing the economic outlook cannot effectively explain the committee’s decisions to the public nor wield the tools needed to guide the committee’s direction. He bluntly stated, 'Chair Waller will eventually realize he must speak about the economic outlook.' That 'eventually' may come as soon as this week’s press conference following the FOMC meeting—if the Fed unexpectedly hikes rates without clarifying its future path, markets could extrapolate a series of further hikes, forcing Waller to break his silence to calm expectations.
Interest Rate Outlook: Holding Steady or Hiking—Both Choices Pose Tests
Nick Timiraos argues that this week’s FOMC meeting serves as a comprehensive test of Waller’s entire strategy. If the Fed holds rates steady, a dilemma arises: over his first two months in office, Waller has repeatedly emphasized that the Fed will not tolerate excessive inflation. Yet if the Fed stands pat without specifying any triggers for action, markets will naturally question whether these tough statements carry any real teeth. As Waller put it plainly: 'Staring inflation down with steely resolve until it melts away on its own is simply not an option.'
Opting to hike rates presents equally significant challenges. Without any forward guidance, markets cannot discern whether such a move is a one-off 'preemptive adjustment' or the start of a new hiking cycle, potentially triggering panic-driven pricing. James Bullard believes Waller is wise to avoid revealing specific operational intentions, but he draws a distinction: explaining the Fed’s response framework under various scenarios is valuable, whereas excessively hinting at a particular action is another matter entirely. Navigating this fine line is precisely where Waller now walks a tightrope.
At its core, there is an inherent tension between Waller’s ambitious reform agenda and his silence strategy: reform requires persuasion, and persuasion demands communication—yet he has chosen the least communicative approach to drive the most sweeping changes. Whether this 'family feud' concludes as he hopes may well be revealed in the minutes of the Fed’s meetings over the coming months.
Editor/KOKO