A New Fed's Big Debut

Handsome Kevin may be Hawkish Kevin after all

Today’s Fed decision was not a surprise: It held rates steady.

And yet, this meeting may have been the most consequential Fed meeting in years. You just have to be a bit of a Fed whisperer to see this.

Start with the statement: The last sentence is the most revealing: “The Committee will deliver price stability.” It’s as clear of a statement as I’ve seen a Fed chair deliver.

Congress has given the Fed a dual mandate — its job is to maximize employment and keep inflation low. But this sentence is all about one arm of that mandate. Inflation. Kevin Warsh is signaling that his is a Fed that will be focused on inflation (and he doesn’t seem to care about whether you believe he’s focused on employment).

Here’s why it matters: The big unknown coming into today’s meeting was whether the new Fed chair would be Sock Puppet Kevin (the supplicant looking to deliver low interest rates to the President), or Hawkish Kevin (the Fed governor who showed himself to be a relentless inflation hawk when he last served on the Board of Governors).

Actions matter more than words, so today’s words don’t end the debate. But to my reading, Warsh issued a clear signal that Hawkish Kevin is in the building.

An inflation hawk worries a lot about inflation, and so at a moment like this, you might expect them to prefer higher interest rates. We don’t know what Warsh’s policy position is, because he — and he alone — refused to give his forecast of “appropriate” Fed policy in the dot plot.

But I’m not alone in seeing this Fed as more likely to raise rates than lower them.

The Federal Funds Futures market allows people to effectively bet on the future of rates. Looking at the December 2026 futures shows that the markets think there’s effectively no chance of a rate cut persisting to the end of the year. Instead, the debate is about whether there will be 0, 1, 2, or 3 rate hikes.

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Beyond economic policy, Warsh also made it clear that he intends to leave his footprint on the Fed. Expect existing norms, rules, and ways of doing business to be challenged.

The first place you can see it is literally in the Fed’s statement, which is now short enough that it’s closer to a social media post than a detailed rationale.

But more importantly, he announced five new task forces to examine how the Fed does its work:

• Communications

• The balance sheet

• Economic data

• Productivity and jobs, and

• Inflation “frameworks.”

It’s no coincidence that these overlap closely with what had been his “outsider” critique of the Fed.

It’s easy to fear change. But it’s also true that re-examining what you’re doing is almost always a good thing. All institutions need renewal. Bringing in outside experts is helpful, as is relying on insiders, and both are involved in this.

If it’s a serious exercise, it’s great. And if it’s experts giving predetermined answers to meet a political objective, count me as unhappy. But for now, I’m more than happy to give the benefit of the doubt.

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TL;DR: We’ve gotten our first clear hint of the Warsh Fed. He made it clear that this is not the Powell Fed. He gave us good reason to be optimistic that his won’t be a Sock Puppet Fed. And if it’s a Hawkish Fed, that’s good as long as we’re at a moment where hawkish policy makes sense. But eventually the cycle will turn and a dovish bias will start to make sense. I’m quite unsure of how he’ll deal with that.

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