An Unwise First Step From the New Chair of the Fed 

From: Steve Ambler and Jeremy M. Kronick 

To: Monetary Policy Observers 

Date: July 16, 2026 

Re: An Unwise First Step From the New Chair of the Fed 

Communication is key to central banking. There is a fine line between creating confusion by saying too much, and creating unnecessary uncertainty by saying too little. The Fed is headed in the latter direction and the Bank of Canada should not follow suit. 

In our recent C.D. Howe Institute study with Thor Koeppl at Queen’s University, we suggested how the Bank could tweak its communication strategy, which is already in quite good shape. We advised the Bank to reduce its emphasis on different measures of core inflation, which are difficult to explain to the public, and focus on explaining instead how it intends to get headline inflation back to target. These changes would be consistent with the Bank’s recent statement that it “is continually seeking ways to improve its ability to explain its forecasts and policy decisions.” 

The new Fed chair seems to disagree. Kevin Warsh presided over his first meeting of the Federal Reserve Open Market Committee last month. The policy statement, associated projection materials and press conference drew more interest than the decision itself (to hold its target range for the federal funds rate at 3.5 to 3.75 percent). 

The statement was more terse than usual and completely eschewed any hint of where the Fed was headed. Committee members submitted their usual “dot plot” projections concerning the economy, inflation, and the appropriate path for the Fed’s policy rate, but Warsh did not submit one. In his press conference, he announced his intention to create five different task forces to overhaul the Fed’s core procedures, while offering little in the way of explanation for the rate decision.  

Warsh emphasized the Fed’s commitment to price stability and has stressed the importance of the Fed’s institutional independence, which is laudable. However, there is a fundamental tension between the commitment to independence and a much more laconic approach to communication. Some have likened this to a return to the Alan Greenspan era. 

Reducing communication cuts against transparency and accountability, which are important complements to independence. 

The Fed has a dual mandate, which consists of both an inflation target (2 percent) and “maximum employment.” Clear communication helps the public understand the open market committee’s views of the current state of the trade-off between these objectives. The combination of a dual mandate and no detailed explanation of its decisions makes it difficult for Congress and the public to effectively evaluate the Fed’s performance or hold it accountable. 

Projections are an integral component of communication by any central bank. They allow for an assessment of how it analyzes economic data and whether or not its decisions come from skilled policy management or from mere luck. 

Projections can focus expectations. Without them, markets rely more on raw data releases. This can lead to larger market swings that are not necessarily driven by fundamental economic changes. 

Warsh’s remarks can be interpreted to mean that he believes projections somehow commit the Fed to a particular course of action. 

This is a mistake. Projections must always be interpreted as conditional. The Fed’s economic projections come from forecasting models. They are conditional on a projected path for the Federal Funds Rate, which in turn depends on a feedback rule from economic conditions to the policy rate. If economic conditions change, so will the policy rate. This conditionality must be an integral part of the communication of any central bank. 

In our study, we recommended the Bank regularly publish projections for its policy rate, which it currently does not do. 

The keys, in our view, are to a) link these interest rate projections with a path for headline inflation back to target, and b) make clear that these projections are conditional on how the economy evolves.  

This would provide improved insight to the public as to how the Bank responds to new economic information (for example on inflation, output). The central banks of Sweden and Norway have had some success with this strategy. A detailed empirical study by the Norwegian central bank found that publishing its policy rate projections reduced market volatility and led to a better alignment of expectations. We would make the same recommendation to the Fed. 

One of Warsh’s five task forces will deal explicitly with communications. A truly independent task force should reach the conclusion that detailed communication is crucial in order to ensure transparency and accountability. Assuming Warsh listens to the task force, we look forward to seeing his dot plots. 

Steve Ambler, an emeritus professor of economics at Université du Québec à Montréal, is the David Dodge Chair in Monetary Policy at the C.D. Howe Institute, where Jeremy M. Kronick is President and CEO. 

To send a comment or leave feedback, email us at blog@cdhowe.org.  

The views expressed here are those of the authors. The C.D. Howe Institute does not take corporate positions on policy matters.  

A version of this Memo first appeared in the Financial Post.