Fed Chair Kevin Warsh Considers Reducing Interest Rate Meetings

Federal Reserve Chairman Kevin Warsh raised the idea this week during the bank's interest rate-setting meeting to reduce the number of meetings of the Federal Open Market Committee (FOMC) where the bank determines its monetary policy, as reported yesterday (Friday) by The New York Times.

The move, if implemented, would end a practice nearly half a century old and would represent the most significant management change under the new chairman, who took office about two months ago and promised a "regime change."

Since 1981, the Fed has held eight pre-scheduled meetings, a practice that began during the days of Chairman Paul Volcker. In emergency situations — such as the COVID-19 pandemic or the 2008 financial crisis — unscheduled meetings are also held, by phone or in person, in order to respond to these situations. There are 12 members serving on the monetary committee.

According to the report, Warsh left the impression that a decision on a revised schedule could be made even before the next meeting, expected in mid-September, even if the actual implementation of the change takes additional time. A Fed spokesperson declined to comment on The New York Times' inquiry.

Such a move would also reduce the amount of information that Wall Street and the general public receive about interest rate policy and the bank's interpretation of the state of inflation and the labor market — which are the focus of the bank's dual mandate — and the economy in general. In other words, this involves a reduction in transparency on the part of the bank.

Reducing the pace of meetings — and consequently the pace of interest rate votes — would be considered the most significant change in Warsh's relatively short tenure so far. This is a departure from decades of practice that will change the way the Fed navigates the American economy and could make it less responsive to changes in inflation and the labor market.

The emerging move joins a pattern that has already emerged since the beginning of Warsh's term. He has already significantly shortened the policy statements that the Fed publishes at the end of each meeting and provides fewer details about his perception of the state of the economy and the appropriate direction for interest rates. Warsh also raised the idea of reducing the press conferences that the Fed holds after each meeting — a practice that began in January 2019.

Since taking office in May, Warsh has sought to present himself — both externally and within the Fed itself — as someone who will lead a real reform in the institution that he himself has been criticizing for many years. The central slogan of his campaign to convince for the position was "regime change." So far, this statement has been translated into the establishment of five working groups that deal with various issues, ranging from how the Fed communicates with the public to the data sources it relies on.

The Fed's founding law — the Banking Act of 1935 — stipulates that the Open Market Committee must meet "at least four times a year." The committee chairman has the authority to convene additional meetings, as do any three members of the committee.