Federal Reserve Chairman Kevin Warsh has moved beyond the phase of constantly proving himself. This week's press conference following the policy meeting was a stark contrast to his passive and constrained demeanor when he first took office. He has begun to deliberately maintain policy flexibility, use officials to send signals, and simultaneously work on reforming the Fed's institutional framework. However, this operational model also harbors considerable policy risks.

From facing skepticism to mastering the rhythm, the policy path refuses to be predetermined.

Warsh was nominated by the president, and a key benchmark for nomination has always been interest rate cuts. In June and July of this year, the FOMC chose to maintain interest rates, at a time when inflation was significantly higher than the 2% target, leading many market commentators to question his resolve to combat inflation. The September rate hike, coupled with Warsh's hawkish statements, led the market to believe that a further rate hike would occur this month; subsequently, several Fed officials stepped in to cool down expectations, ultimately resulting in no rate hike at this meeting. At the press conference, Warsh broke away from his previous passive response to criticism. He denied that the Fed had a fixed policy path, while simultaneously signaling a tightening bias, stating that although financial conditions had tightened somewhat, it was not yet a true contraction. He retained policy options while laying the groundwork for a December rate hike, indicating that if inflation remained stubborn, the option of raising rates would still be on the table. Regarding market speculation that high-ranking officials had instructed them to make statements to guide expectations, Warsh denied this, refusing to admit that he had done so. This pattern creates a clever buffer: the deputy sends the signal first, while Warsh himself can distance himself from the statements, preserving room for interpretation—this has become his signature style.

Anchoring to the 2% hard target, while simultaneously promoting internal reforms within the Federal Reserve.

Warsh's core objective is very clear: to suppress inflation to the benchmark level of 2%, rejecting market speculation that the Fed would "tolerate inflation slightly above 2%." The September rate hike largely dispelled doubts about his resolve in combating inflation; he explicitly stated that the Fed would continue to raise rates if necessary. Simultaneously, Warsh is pushing for reforms to the Fed's mechanisms, leading a special task force to optimize inflation measurement methods. Furthermore, he announced adjustments to the interest rate voting arrangements at the press conference: the Fed will still hold eight meetings annually, but will reduce one rate vote in 2027 and two in 2028. After the adjustment, the influence of speeches by many regional Fed officials will decrease, and regional governors will have fewer opportunities to vote. Of course, Warsh retains the authority to convene emergency meetings and adjust interest rates at any time.

The new paradigm harbors hidden dangers, and the risk of delayed tightening cannot be ignored.

This roundabout approach, which reduces the transparency of routine communication, has also drawn criticism from professionals. Robert Sockin, chief U.S. economist at PGIM, believes that current inflation is too high, and the pause in interest rate hikes is a policy mistake. He said that Warsh only mentioned that financial conditions have tightened but not to the point of contraction, without fully explaining why interest rate hikes are not necessary in the current environment. In his view, if the Fed's tightening pace continues to be slow, it will eventually have to raise interest rates even higher, and the risk of economic recession will increase accordingly. Those who advocate for high transparency from central banks believe that full public discussion can force officials to be more rigorous in their policy logic. Warsh's approach of gradually retreating behind the scenes and relying on indirect methods to manage expectations has lengthened the verification period for policy effects.

Conclusion

Warsh has overcome the initial crisis of confidence he faced upon taking office and is reshaping the Fed's communication and decision-making rules. Flexible expectation management has given him more room to maneuver, but the costs of delaying policy tightening may not become apparent for several months.