Is it a problem if the Fed speaks too much?

By Bryan Mena, CNN

Washington (CNN) — The Federal Reserve is yapping too much about the economy, according to Kevin Warsh, the US central bank’s incoming leader.

During his confirmation hearing last month, Warsh argued that Fed officials “speak quite frequently” and stressed that “truth-seeking is more important than repetition.”

“If one has a press conference, one wants to deliver some important news,” he said.

Since the 1990s, Fed officials have regularly weighed in on the economy, including media interviews and press conferences, public speeches, lengthy policy statements and periodic economic forecasts.

Warsh, who is slated to officially begin his four-year term on Monday, suggested doing away with some of that communication with “a new framework” and “new tools,” though he didn’t go into specifics.

Experts say Warsh isn’t completely off; times of uncertainty make it difficult for Fed officials to predict where the economy and interest rates may be headed. But it would be a major shift for the Fed if Warsh decides to cut back on news conferences or do away with officials’ quarterly economic projections.

“Communication isn’t trivial,” Loretta Mester, who served as president of the Federal Reserve Bank of Cleveland from 2014 to 2024, told CNN. “You’re talking to market participants, you’re talking to the public, you’re talking to Congress, but there may be some enhancements to make communication more effective.”

The Fed remained mostly silent until the ’90s

For most of its 113-year history, the Fed’s interest-rate decisions were somewhat of a mystery. There were no policy statements, routine public comments or news conferences by the chair.

Traders had to infer what the Fed was doing with its benchmark lending rate based on market movements.

That changed under Fed Chair Alan Greenspan, who introduced the post-meeting policy statement in 1994.

Subsequent chairs kept adding to the Fed’s communication artillery. Ben Bernanke was the first Fed chair to hold a formal news conference in April 2011.

“I have always been a big believer in providing as much information as you can to help the public understand what you’re doing,” he said then, “to help the markets understand what you’re doing, and to be accountable to the public for what you’re doing.”

The post-meeting press conferences help guide Wall Street’s expectations and shape interest rates in the long term. A Brookings Institution survey released this month found that economists and analysts want the Fed to continue press conferences after each rate-setting meeting.

“The Fed sending signals on what it’s likely to do in the future is very useful because it quickly affects financial conditions,” said Derek Tang, an economist at Monetary Policy Analytics.

“For example, in 2022 officials used their projections and speeches to signal that they were serious about hiking rates to get rid of high inflation, which allowed them to not hike even higher because their communication already did some of the lifting,” he added.

Uncertainty can muddy Fed communication

But sometimes no one knows what may be in store for the US economy.

Times of unusually high uncertainty inherently make Fed communication less helpful because circumstances can change on a dime, Mester, the former Cleveland Fed president, said.

When President Donald Trump unveiled stiff tariffs last spring, Fed officials, including Chair Jerome Powell, warned of the possibility of significantly higher inflation and weaker economic growth. But those initial comments didn’t age well when Trump toned down his tariffs and businesses helped keep consumer inflation from surging.

And this year, the US-Israeli war with Iran further complicated the Fed’s efforts to assess the economy.

Over the past year, the Fed’s policy statements have consistently highlighted that the economic outlook is “uncertain.”

“Warsh does have a point on the Fed’s forecasts,” Tang said. “It’s important not to be wedded to one thing, but that’s why the (Fed’s rate-setting) committee keeps saying the forecasts are not a commitment.”

Even if Warsh cuts back his own communication, he cannot control the 12 presidents of the regional Fed banks, Tang said.

But at least some people appear to agree with Warsh. A third of respondents in the Brookings survey said Fed regional presidents “should speak in public less frequently.”

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