For the better part of the past year, we’ve heard from Kevin Warsh on his views on the Fed, policy and the economy.

Smaller balance sheet. Lower rates, because “AI is going to make everything cost less.” Structural reform to break what he’s called “the entanglement” of the Fed with government financing.

And he took plenty of shots at the entrenched Fed regime along the way. The Fed’s hubris. Its failure to meet its price stability mandate for five straight years. The QE era it ushered in, and continued leaning on, as a crutch against its own (and Congress’s) bad policymaking. And the outcomes it manipulated through “forward guidance,” shaping market opinion with words and forecasts.

Then Warsh was named Fed Chair. And he told us what his Fed would look like: less manipulation, less telegraphing, more dissent, more volatility.

Today we got the first meeting.

First, he let his colleagues show where they stand. Not too surprisingly, the “dot plot” came in hawkish. His colleagues around the table took the opportunity to ratchet UP the rate outlook.

The committee did what the old Fed does. Calibrate the Fed funds rate, to the decimal, against a near-term, oil price/supply shock-driven rise in the inflation print.

Warsh encouraged them to submit their dots. He did not submit one of his own.

Then he told us why.

When he reviewed the submissions, he noted they all came in “with pencils, you know, those kind with the big erasers.” His point: his colleagues themselves didn’t feel bound by their own forecasts.

So, he revealed the old machinery of the Fed. And then he immediately announced he was putting all of it under review.

He announced five task forces. On Fed communications, including the dot plot. On the balance sheet. On the data the Fed relies on. On productivity and jobs in the age of AI. And on the inflation framework itself.

Every input of the old Fed reaction function is now on the table for a rebuild.

On the Fed’s “forward guidance” tool, Warsh has already deconstructed it. He considers it a circular reference.

The Fed signals hawkish. The 10-year yield ticks up. The Fed then points to the rising 10-year as evidence that the market sees inflation, and signals hawkish again … 

But the market wasn’t telling the Fed anything about the economy. It was reflecting the Fed’s own words back at it.

Moreover, with the constant noise of Fed voices, the market reacts not to the data, but to what we anticipate the Fed to say.

With that, the end of forward guidance may create a more stable market, not less. Markets price the data, not the Fed.

So, today’s meeting one wasn’t really about a policy decision. It was about the declaration of regime change at the Fed. 

Warsh has spent the past year telling us what he believed was broken. Today he let the old machinery show itself, the dots, the forecasts, the reflexive market and Fed feedback loop, and then put that machinery under review.