As the Federal Open Market Committee meets this week, the more telling story may be Chairman Kevin Warsh’s approach rather than the FOMC’s rate target decision. If his first meeting is any guide, he will say as little as possible; he has already declined to provide his own rate projections for the dot plot and significantly curtailed forward guidance. That restraint is deliberate, and it previews a far larger project. Warsh has launched five task forces to review how the Fed communicates, manages its balance sheet, uses data, understands productivity, and fights inflation.
Conducting a thorough review of monetary policy was the first recommendation we made when Warsh took office. The Fed adopted its flexible average inflation targeting regime in 2020, promised to let inflation run hot to make up for past shortfalls, and then presided over the worst inflation in four decades while calling it transitory. When the Fed ran its scheduled framework review in 2025, it revisited the wording of its consensus statement and little else. The five task forces are, in effect, the review that should have happened last year.
A new Cato briefing paper, released today, summarizes the best possible outcomes from this review. It works through each task force in turn, identifying the underlying problem and the reform that best addresses it. The recommendations differ in their particulars, but nearly all of them point in the same direction: The Fed serves the public best when it does less, not more. A well-functioning central bank commits to clear rules, holds a smaller footprint in financial markets, and leaves more room for prices and private information to do their work.
Communications is the cleanest illustration, and this week puts it on display. After 2008, the Fed came to rely on forward guidance, telling markets in advance what to expect and building an elaborate signaling apparatus around it. The goal was predictability, yet the result was often the opposite. Markets and incoming data usually offer a better real-time read of the economy than the Fed’s own forecasts, and guidance can drown out those signals. In September 2025, the data pointed to holding the rate target steady or even hiking, but the Fed had so firmly telegraphed a cut that reversing would have shocked markets—so it cut anyway, despite prevailing data.
Warsh’s instinct to say less is therefore a step in the right direction. If this meeting follows the pattern of his first—a shorter statement, little forward guidance, few clues about the path—that restraint is welcome. But restraint alone is fragile; it lasts only as long as the chairman who practices it. The durable fix is to replace discretionary communication with a rule. The Fed should publish its reaction function—a transparent formula linking its rate decisions to observable conditions—and let that stand as its communication. Predictability would then come from the rule itself, not from parsing a chairman’s silence, and forward guidance in its current form would become unnecessary.
The same logic runs through the rest of the paper. A balance sheet that ballooned past comfortable limits should be shrunk and simplified. A central bank that leans on slow, heavily revised government data should make room for faster private sources. A framework that bases policy on speculative productivity forecasts should instead rest on a rule. In each case, the reform narrows the Fed’s discretion and widens the space for markets and rules to operate.
None of this assumes the Fed can deliver perfect outcomes. It cannot. But a Fed that is more predictable, more accountable, and less intrusive than the one we have is a welcome step in the right direction.
